What does quant mean in finance

Quants - the secret rulers of the stock exchange !?

In physics, the quantum is the smallest, indivisible unit of a physical quantity. And in fact the quantum has something to do with physics in the financial world as well. What is behind this designation and whether the quants are really the secret rulers of the financial sector, you will find out below.

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Quant - quantitative analyst

Quant is an abbreviation and stands for "Quantitative analyst“, Ie special analysts who develop complex financial instruments using the methods of mathematics and statistics. And to draw the bow to physics right away: Quants are seldom the classic business administration graduate, but rather highly talented physicists and mathematicians. Keywords that come up again and again in the course of quants are, for example, statistical arbitrage, algorithmic trading or electronic market making.

"Because knowing how much you buy and how much you sell is like correcting the trajectory of a rocket going to the moon."

Nicole El Karoui - finance mathematician at the Sorbonne University in the documentary "Die Geldroboter"

The New York Times wrote in an article aptly, about the so different worlds of the natural sciences and the financial sciences about changing physicists and other scientists: "[...] they move from a world in which discrepancies of a few percentage points in the measurement Nobel Prize or endless ridicule, in a world in which a few percent can mean prison on the one hand and your own private Caribbean island on the other. " 2

The ex-hedge fund manager and trader Corvin Codirla, who literally says:

"A quant can be defined as similar to a mushroom, you keep him in the dark and feed him shit"

Of course, always with a wink, the complete explanation in English of what a quant is can be found in the following video:

From theory to practice

According to the English Wikipedia, the concept of quantitative finance started in 1900 with the doctoral thesis "Theory of Speculation" by Louis Bachelier.1 It was the first time that the application of financial mathematics was presented and presented in an academic manner.

Around fifty years later, Harry Markowitz adapted some mathematical concepts to the financial context and published, among other things, his thesis "Portfolio Selection". It was the starting shot for numerous other work on the practical application of the previously known theoretical knowledge and culminated in 1973 in the Black-Scholes model for evaluating financial options, which is considered a milestone in financial management and with the Alfred Nobel Memorial Prize for economics (Nobel Prize in Economics or Nobel Prize in Economics) was awarded.

How do you become a quant?

While the term is far from being as widely used in Germany as it is in Anglo-Saxon, the desire to become a quantum is no longer a rarity. In principle, of course, anyone can become a quant. As a rule, however, one should have taken one of the courses in applied mathematics, physics or engineering. Very good mathematical and analytical skills are required, and a doctorate can also do no harm when applying to one of the major financial institutions. In addition, quantitative analysts also have excellent programming skills and are very familiar with the programming languages ​​C, C ++, Java, R or Python. Graduates from data science and machine learning courses are also predestined for the career of a quant. In the meantime, there are also special seminars that are geared towards the training of future quants.

In the following video, young quants describe their careers in quantitative finance to students from the renowned University of California, Berkeley. You work at Citi, Google or Blackroll, among others:

Hobby quants: Freelancers can also get involved

Those who cannot make it through the tough assessment center and despair of the even tougher competition still don't have to give up their dream of quant. Thanks to the Internet, you can now develop, test and apply your own trading algorithms as a talented independent quantitative analyst on appropriate platforms.

For example, one of these platforms is Quantopian. The platform describes itself on the homepage as follows:

"Quantopian inspires talented people everywhere to write investment algorithms. Select authors may license their algorithms to us and get paid based on performance. "

The platform makes it very easy for a dedicated hobby quant who has a bit of programming experience in the Python programming language to get started. With the help of a simple "Sample Mean Reversion Algorithm" one can familiarize oneself with the basics and, for example, extend or change the algorithm live. In addition, detailed tutorials for prospective quants are available.

But what does Quantopian get out of it? Quite simply, in the so-called “Quantopian Open” contest, the members can compete against each other with their own algorithms. Everyone can take part, no special training or work experience is required. The investor members then invest real money using the winning algorithm. The developers of the algorithms then share in the profits.

Similar platforms to Quantopian are, for example, Cloud9Trader, Numerai or Quantiacs.

It's that easy with Cloud9Trader:

Book tip: My Life as a Quant

Those who are more interested in the life and work of a quant should definitely take a look at the book "My Life as a Quant: Reflections on Physics and Finance" by Emanuel Derman. This autobiography gives an insight into the life of the South African finance scientist, businessman and physicist who worked for investment banks for a long time and is now a professor at Columbia University. Among other things, he developed the Black Derman Toy model for determining the price of bond options, the Derman Kani model for explaining the volatility smile for options and helped develop the aforementioned Black Scholes model for options.

Documentation: Quants: The Alchemists of Wall Street

I know we already had some videos. Nevertheless, I would like to give you the documentation: "Quants: The Alchemists of Wall Street“Not withheld. As the name suggests, it deals with quants and algorithmic trading on the stock exchange. Have fun watching it:

What do you think of the job of quant? Would it be for you or not? I would be very happy about your opinion in the comments!

Sources and References

Image source: markusspiske / pixabay.com

Published on July 30, 2017. Last updated on March 30, 2020