"These realms of knowledge contain concepts such as data mining, non-linear dynamics and chaos theory." (Image by Steve Jurvetson.)

From “School for Quants,” Sam Knight’s interesting Financial Times look at the training of the next generation of financial-sector math geniuses who will likely be building and destroying and building and destroying the world’s economy in the near future:

“As of this winter, the centre had about 60 PhD students, of whom 80 per cent were men. Virtually all hailed from such forbiddingly numerate subjects as electrical engineering, computational statistics, pure mathematics and artificial intelligence. These realms of knowledge contain concepts such as data mining, non-linear dynamics and chaos theory that make many of us nervous just to see written down. Philip Treleaven, the centre’s director, is delighted by this. ‘Bright buggers,’ he calls his students. ‘They want to do great things.’

In one sense, the centre is the logical culmination of a relationship between the financial industry and the natural sciences that has been deepening for the past 40 years. The first postgraduate scientists began to crop up on trading floors in the early 1970s, when rising interest rates transformed the previously staid calculations of bond trading into a field of complex mathematics. The most successful financial equation of all time – the Black-Scholes model of options pricing – was published in 1973 (the authors were awarded a Nobel prize in 1997).

By the mid-1980s, the figure of the ‘quantitative analyst’ or ‘quant’ or ‘rocket scientist’ (most contemporary quants disdain this nickname, pointing out that rocket science is not all that complicated any more) was a rare but not unheard-of species in most investment houses. Twenty years later, the twin explosions of cheap credit and cheap computing power made quants into the banking equivalent of super-charged particles. Given freedom to roam, the best were able – it seemed – to summon ever more refined, risk-free and sophisticated financial products from the edges of the known universe.

Of course it all looks rather different now. Derivatives so fancy you need a degree in calculus to understand them are hardly flavour of the month these days. Proprietary trading desks in banks, the traditional home of quants, have been decimated by losses and attempts at regulation since the start of the financial crisis. There is nothing like the number of jobs there used to be.” (Thanks Browser.)