Interesting, but I've always felt that non-quant people tend not see the beauty in the model but are only interested in the result. I mean, do they really care what piece of beautiful maths you use? or the genius of your one-line implementation? I feel that as a quant you tend to take passion in the methods more than the result.

True, my circles are limited and my question was probably baiting a bit. I guess there are some quants out there that have equal passion for the finance and for the math...Can a quant have an advantage in the retail market? (in trading his own savings) and what market would you choose?Real-estate investing? Hmmm... Does a quant have advantage over, for example, a midly-educated Builder? In my opinion, not really...What about warrants?

That's it Koch - you need to think strategically about where you have a comparative advantage in a defined competitive setting. Just building beautiful models offers psychic rewards. But you are around investment bankers and entrepreneurs who have been trying to sniff out and appropriate wealth their whole life and get quite good at it.

QuoteOriginally posted by: FulvioIf so, aren't traders basically trying to make money out of each other and isn't the average profit that traders make about zero? of course trading back and forth does not create wealth. It just transfers wealth.

Well, I am just one person.But in the retail market, you can definitely create an advantage for yourself. The difficulty is in raising enough capital to efficiently capitalize on your advantage.As far as having passion for finance - if you don't have it, get the F out.And as for real estate, most developed countries (and especially the US) have systems in place to favor property owners. If you can buy into this club, do so, because it is certainly not a zero sum game. Well, it's only zero sum if you consider the renters and non-property owners as part of the game.

The quant competitive advantage is their ability of pricing exotic products where there is no market yet. They can develop programs to calculate hedging, risk etc. Any trader can come up with a price for a new product but he can't back it up with anything but a "hunch" or some non-quantitative argument. Our ability to back it up wioth some theory gives it a better chance of being "right".Once I've read that most of the wealthy people in the States made their fortunes in the real estate market. It is definitely a good investment but the problem is to know when to get in. Right now it seems to be overheated, especially in NY and SF. Is it still a good time to get in? Maybe if you are going to live there it is worth it. I think some quants try to make money out of their models. In particular in some hedge funds. See http://www.science-finance.frI'm one more Physics PhD who became a quant (after getting a Ms in Math Finance). I'm sure a couple of "Gell-Manns" have already left the Academia for Wall St. I don't think this is a problem! The universities cannot absorb all the PhDs anyway! There are not enough jobs in Academia. Therefore it becomes a natural selection process: only the ones who are really willing to devote their life to their field will stay. If you have any other passion (you like to travel, you want to have a boat, a nice car, etc), there is no point in staying! In Finance you work the same hours as an assistant professor (or less) and make multiples of their salary.

QuoteOriginally posted by: fodaoThe quant competitive advantage is their ability of pricing exotic products where there is no market yet. They can develop programs to calculate hedging, risk etc. Any trader can come up with a price for a new product but he can't back it up with anything but a "hunch" or some non-quantitative argument. Our ability to back it up wioth some theory gives it a better chance of being "right".Yeah "Right"... many quants have blown huge holes in companies... happens all the time.. often it involves selling mis-modeled structured products. I can honestly say I've seen a quant buy a structured product (optionality) and get shellacked on it.I beleive competitive advantage is different, I think using quantitative techniques to make decisions is a big edge.. unfortunately most (but not all) people who can perform the analytics dont have the balls, discipline or resolve to act upon thier findings, they often spend hours analysing and re-analysing and by the time they are done, the oppotunity is long gone. Edge can come from business franchise, from Capital base.. there are many many different possibilties for a so-called "edge" in the market.. if u were to ask me whether quants over all have a real edge in trading, I would say that is not true.. people are people, pieces of paper are pieces of paper.. sometimes great traders and business people come from the best education and sometimes they come from the wrong side of the tracks.. thats my 2c..

Many traders have blown up too so no "competitive advantage" on that.

If I could add one catchphrase that suprises me by its absence here, it would beincomplete information - of all formsIf you take the black-scholes model, it looks like hedging an option is a piece of cake, because you know everything you need to know. For real investors and traders, this is not that close to reality. Investors don't know the pitfalls, traders don't know that CEOs are pull a hostile takeover, don't know where the liquidity went, etc. Believe me, the daily bread of banking is not in hedging derivatives. Models are often used to gauge the impact of actions and reactions which are often fairly qualitative in nature. Such a user is not going to be very patient with your lecturing on the finer points of certain sigma-algebras. Markets are made when the incomplete information isn't too big - that's basically Akerlof'sthesis in 'the market for lemons'. Knowing which piece of the information to offer without giving away your edge is the moneymaking part of this game. Models don't fit cleanly into this viewpoint because of the high level of real uncertainty (i.e. the risk that is not quantifiable), but they still offer real power to make qualitative decisions. So, I think that trying to push people into a 'quantitative trader' box completely misses the point. We're not here to build a perpetual motion machine. Managing investments requires active engagement - you don't just come up with the golden goose and then follow the exponential growth of your wealth from your Chateau.

Compared to an averagely educated trader who understands perfectly well BS and not too complicated pricing techniques I don't really see where a quand can have an competitive edge...All you need to be a trader is knowing how to calculate the expected P/L on a trade, and quantify the different risks involved. I think if a trader can do that then he's probably ok. Some quant don't give a darn to what is happening in the markets, whereas some traders may see that at the moment the vol is quite low (for example)... etc ... The reason why quants are hired is because of their ability to model new products (probably) quickly and efficiently. A trader doesn't really trade "new products" ... and certainly doesn't need them to make a living...

NTR Re the post below claiming RE is more than a zero game.I would respond that yes tax laws etc favor RE ownership, but suggesting its a sure win, exemplifies the excess of the era we are in.RE can get hammered under many outcome ranges.The primary driving metric right now is very low mortgage rates.Which drives collateral values up, which invites more leveraging, a vicious cycle until one day it can't sustain itself.Thegreat RE successe stories are those where the buyer bought in the midst of high rates and recession.A neighbor of mine who could afford anything rents, leaving his capital earning returns on equity at the investment bank he has worked for the last 15 years.

To give an example of something where quants and/or quantitative methods have had an important role, think of the development of local/stochastic volatility models by french quant groups. Part of this development was initiated by the need of consistently handling deep out-of-the-money option, part of the viewpoint that these options were indeed mispriced by the market, e.g. that certain combinations of options with positive value in all states of the world (for instance butterflies) had negative market prices.