Quants

Quants is short for "Quantitative Analysts". Quants are mathematicians, statisticians, and computer scientists who try to use mathematical formulas and computer models to predict the direction of the stock market. The finance investment industry uses quants to try to gain an edge in the market. After all, if you are able to predict the direction of the market with a bit of certainty and are able to detect whether the market is overvalued or undervalued, then you are able to make investment decisions to your advantage.

Among the first quants is Ed Thorp. Thorp was profiled in the Scott Patterson's book "The Quants: How a New Breed of Math Whizzes Conquered Wall Street and Nearly Destroyed It". Scott Patterson is staff reporter for Wall Street Journal. Ed Thorp and Scott Patterson were interviewed by Terry Gross in the NPR program "Fresh Air". Thorp taught at MIT and developed a system of counting blackjack cards that would often beat the house. This was back then when card counting was still new. Back in 1962, he explained how he count cards in his book "Beat the Dealer: A Winning Strategy for the Game of Twenty-One". After seeing that his mathematical models worked successfully in the casinos, he used mathematics and computers to see if he can beat the stock market.  Thorp says "the biggest casino in the world appear to be Wall Street" [quote from Fresh Air program]. So that is how he became a quant trader and a hedge fund manager.

Work of the Quants

Other people considered quants that made contributions to quantitative finance are Harry Markowitz's published the paper "Portfolio Selection" in 1952 and Robert Merton who used stochastic calculus in 1969 in the finance field.

The work of the quants gave rise to the famous Black-Scholes formula for options pricing. The formula was named after Fischer Black and Myron Scholes who wrote the paper The Pricing of Options and Corporate Liabilities in 1973.  This work won Black and Scholes the Nobel Prize in Economics in 1977 for "a new method to determine the value of derivatives".