Learning Curve and Chess

Hi all, The driving factor for any of what we do as quants-in-training is computational hardware, and the ability to use it to mimick human behavior. The simple difference between a human and a computer is that a computer has no understanding or appreciation for the intrinsic beauty of  an intellectual thought. All it knows is to reduce everything into something quantifiable, which has its own risks. But boy is it good at that. Clear example : a bunch of researchers have basically trawled through chess moves of some grandmasters and figured out what characterizes them - some strategy, certain set of tactics etc. It isn't error free, but it is a solid attempt at identifying a pattern that can be attributed to, and drives, the behavior pattern a single individual or organization. Think on it. The paper describing the researchers' findings is included in this file. “A Methodology for Learning Players’ Styles from Game Records”

This is some rescue

Since Congress passed the "Emergency Economic Stabilization Act of 2008" (aka the bailout), the markets have continued as if all hell has broken loose. Now that the bailout has been passed and we're calm enough to actually look at the bailout, some alternatives have cropped up from economists, academics and professionals. Prof. Stephen Figlewski, our advisor, has written a paper that argues rightly that the current bailout only addresses the symptom without treating the cause: losses in the real housing sector. It is valuable insight and he is delighted to share it with us! Viewing the Financial Crisis from 20,000 Feet Up

"said 08-09," said 08-09.

Hi Guys,

This will be my last post as the President of QFS.  As the year is revving up, our primary focus to our members for the first few months is job placement.  There's really not too much to say about that other than apply everywhere.  We will be focusing on new member recruitment, dense workshop, and intense work on our quantitative portfolio.  Guest speakers will be on hiatus as Stern's LC construction disallows us to have frequent meetings.  That said, get ready for a kickass year!  (If anyone can tell me what the title of the blogpost is called, i'll give you a cookie, or something of similar value).

To the incoming freshmen:  If you received an email and have no clue what we do, please take some time to browse the site and look for the first meeting announcement in September.

Why I Am So Pushy About Technical Majors

Reason 1.) CompSci, Math, Engineering, Chem > Finance

Reason 2.) Quant --> Money

What is QFS Up To?

It has been quite some time since my last post (more than 4 months...) and I feel obliged to let everyone know what the Quantitative Finance Society (QFS) is up to these days and where we are headed. QFS's humble beginnings trace back to early 2007 / late 2006 with the idea that interested individuals would meet bi-weekly and discuss ideas and topics, which are relevant in the Quantitative Finance field. Bi-weekly meetings turned into weekly meetings and subject-specific workshops began to surface with the start of the Fall '07 semester; however, the full feel of the society wasn't quite right (I'm a terrible writer, so please forgive my storytelling tendencies). We have made some major improvements in our meeting structure as well as our mission statement and member benefits. Meeting Structure

• We now have weekly meetings (held in UC-59 for Spring 2008 at 07:00PM EST). These meetings are usually chair-run ranging on all topics that pertain to our portfolio (strategies, techniques, factors or improvements on existing models) or that the chairs found interesting (equity markets, commodities, futures, options, currencies, economic indicators, neural nets, etc...). Also occurring during these meeting times are guest speaker events -- QFS will invite quant professionals to speak about their experiences in the field and how to best prepare oneself for work in similar fields.
• We also have workshops during the week (Computer Science / Math on select Tuesdays in LC-9 at 12:3PM EST) (Finance and Econ on select Saturdays and sometimes during the Thursday spots). These workshops are very specific and are targeted at individuals with a keen interest in developing his/her skills in the field. Computer Science Workshops in the Fall '07 semester consisted of an Introduction to Financial Programming series which consisted of the basics to programming with respect to pseudocode, VBA/Excel, and Perl. The Spring '08 semester introduces the study of Algorithms with Financial Applications series. Students attending these workshops will learn the basics to the fundamental algorithms and branch off into their applications in Finance (Bond and Option Pricing and Portfolio Optimization). All workshops are chair-run (Juniors or Seniors in Stern/NYU).
• Lastly our major improvement involves making the new "glue" of QFS: a society-run, quantitative portfolio. Our chairs and members will be working towards creating a quantitatively run portfolio. We have portfolio meetings every other Thursday and discuss next steps and developments in our portfolio strategies. We have 1 Portfolio Manager, our Economics Chair, Michael Gorun and Varun will be "managing" risk (sure...). So far we are looking into a few different strategies: Market Timing (using Economic Indicators and Fundamental Sector/Industry data), Global Asset Allocation (using Global Economic data from the EIU), and a Bond Trading strategy (using a combination of economic data and fundamental stock data). However, the model that we are seriously considering as the progeny for this portfolio is a Multi-Factor Equity Model that Varun will be heading.

Mission Statement

• We haven't drastically changed our mission statement from our dedication to learning and the advancement of quantitative analysis; however, we have delved a bit further and come up with a more targeted mission. We feel that learning is essential, but without practice most of the waves that pass into our external acoustic meatuses go forgotten. Therefore we approach learning quantitative finance from the bottom up with a healthy mixture of theory (speakers, workshops, meetings) and practice (portfolio, projects).
• Another main goal is to assist our members with the "job process." As college grows increasingly competitive with the realization that talent lies in the hardest to reach corners of our Earth, getting a job is becoming very hard. Actually, getting the right job is almost impossible now. Our goal is to inform and assist with this process for summer internships (for all classes, but target towards Juniors) as well as full-time recruiting for Seniors in the Fall.

Member Benefits

• Yes, your name goes on the site. Yes, you are a lifelong member. Yes, *you will be considered for our resume book, which we will send out to recruiters for full-time job hunting every Fall and junior-year internships every Spring*. Yes, some job offers will come directly through us to paid members. Yes, you will be eligible to attend alumni mingles (when we reach that maturity) and corporate mingles. Yes, it is only a single payment for a lifelong membership.

That said, I know everyone is excited for the remainder of this semester while we work on getting our trading model up and running (and tailor our website to deliver up to the minute performance statistics...) and we will be prepared for a rocking summer and future semesters with our society. For any questions/comments/concerns, please e-mail me (so I have an excuse not to do homework) at [varun \at/ quantfs.com].

- V

New Year's Resolutions

To re-cap what changes we are making to club structure for the coming semester:

• Meetings will still be every week; however, on the "odd" Thursdays we will have normal meetings that are either Apollo Clap run or guest speakers and on the "even" Thursdays we will have meetings centered around our portfolio, which will begin trading after our first "even" meeting (either end of Jan or beginning of Feb).
• Workshops will still be run to handle our comittment to higher education: Varun will be running CompSci lectures, Michael will be running Finance lectures, and Robert will be running Mathematics lectures. All the lectures will be "applied" courses to Quant Finance.
  • Varun� will run this semester's compsci workshops as a course on Algorithms as they apply to quant finance (starting from fundamentals and ending with complex techniques)
    • The intro lecture and first lecture's slides are online now in the CompSci section of the site.
  • Mike will cover Fixed Income, Commodities and equity strategies (among many others).
  • Robert will hit on Linear Algebra, Probability and Statistics (possibly among others). He will be very thorough and teach the fundamentals and what you need to know about each subject when it comes to quant stuff.
  • Econ workshops are on a hiatus as of now.
• On our portfolio: we will run the portfolio as a mock hedgefund. We will trade daily, mark-to-market our portfolio with a public statement every semester and keep our strategy and holdings/performance status transparent on our site (this section is a work-in-progress right now). We will bench against IAG's portfolio, the S&P 500 and Credit Suisse's 130/30 Index (when it becomes avaliable) [we may also bench against a real estate index].
  • The heirarchy of the portfolio team will be: 1 main portfolio manager. Under him will be 2 sous-managers, a risk manager and a _____ (forgot the title). The rest of the team will be the members who attend our "even" meetings; they will be responsible for the formation of strategies.
  • Electing individuals for these positions is a pure meritocracy and the populus will be the dedicated individuals who attend all the "even" Thursday (that's for the portoflio) meetings.
• We will have fewer guest speakers this semester because we had too many last semester and not enough member-driven content aside from the workshops.
• We will focus on some non-quantitative sessions this semester (interviews, resume) as they apply to quantitative positions.

Quick Thoughts

Economics Workshop this Saturday is canceled. Sorry for the inconvenience.

Update: Jim Simons, Chat with Financiers Series.

Sorry if you don't understand my notes, but I wrote down what interested me and my thoughts on what Professor Simons said at this event. It was fantastic!

• EM Algorithm (link1|link2|link3)
• Baum-Welsh Algorithm (link1) - "Lenny" Baum was one of the co-founders for RenTec (I believe...). If not, I know that he was an owner, along with ~85 individuals (and growing) at the firm.
• 2 Funds at RenTec (probably incorrect, but I suppose he meant to stress the difference in strategies):
  • Medallion Fund --> Prize-winner is a high-frequency stat-arb fund. During the August deleveraging, they lightened the positions on Wed and Thurs of the week and by Friday it was fine.
  • ??? Fund --> Longer-term strategy, which they didn't touch during the August deleveraging.
• Capture evolving markets' inefficiencies. US is an "efficient" market, at least we can say this in terms of liquidity, which is why Stat-Arb can work so well.
• To do what fundamentalists did back in the day, we have to move to global markets, where the markets are still relatively inefficient and where quantitative strategies haven't been as pervasive.
• Risk Assessment - multiple hedge layers
• Local Risk Assessment + Global Risk Assessment (my thought: what types of risk to look at? asset class, industry, sector, currency, inflation, volatility, etc...)
• Q: In your hi-freq, Medallion fund, when you take positions that have holding periods of just minutes (to convergence for stat-arb), do you still care about long-term risk? A: Of course!
• Q: What can you say about 'weird' things that you applied to your funds, such as String Theory, Black Swans, etc... A: Well, I can tell you we never used String Theory, but I won't say anything about the others. (my interpretation? they used everything ever conceived except for string theory...haha)
• Q: What is the goal of your fund? A: That's a good question. Well the effect is certainly to reduce volatility by providing high liquidity (from Medallion).
• Q: Why do you not hire Finance people? A: It's not that we have a policy against Finance people, but for what we do (my note here: he is talking about the Stat-Arb/Medallion fund), we really need individuals who are experts in Optimization, Statistics, Physics, Astronomy (here he goes into a diatribe about how Astronomers are like Economists in their pursuit of extracting holy information from a mass of noise), Mathematics, Computer Science, Engineering, etc... We need people who are smart and can learn...we then can teach them Finance.
• Q: To what extent is RenTec an enterprise software user? A: All important server/data stuff is in-house built. We use some statistical packages to do initial idea-testing, but all 'serious' stuff is done with custom software.

So what did I really learn from this talk? It reaffirmed my suspicions of what it takes to be a mad quant...relatively little Finance knowledge. Wait; step back! This does this apply to all types of quant? In one way or another, yes. So take for example Professor Simons' stat-arb fund: They clearly need the non-Finance people to deal with data and strategies for optimization and statistics. If you want to do stat-arb, what should you major in? Computer Science, Mathematics, Statistics.

What about the more fundamental strategies such as a multi-factor model? Sure, you need 1 Finance person (accountant) and 1 Econ person, and the rest have to be stat, math, and compsci. What's the conclusion for me? Finance is an applied subject; I would strongly suggest learning a hard science too.