Where's the fun in that? People have used math to make their fortunes.
https://en.m.wikipedia.org/wiki/D._E._Shaw_%26_Co.
https://en.m.wikipedia.org/wiki/Renaissance_Technologies
Aren't we all reading HN to learn?
https://en.m.wikipedia.org/wiki/D._E._Shaw_%26_Co.
https://en.m.wikipedia.org/wiki/Renaissance_Technologies
Aren't we all reading HN to learn?
These guys are trained professionals who've dedicated literally decades to graduate level pure & applied mathematics, and are simply of another a caliber. I can read JAMA all I want, quite fun indeed, but if I practice surgery, I'm certainly going to slice an artery. You have a better chance of going to Atlantic City and putting 100k on black than successfully making money in trading any set of securities, whether its Asian fixed-income, blue chip Wall Street equities, or CME pork belly futures. Just because you back-tested something successfully doesn't mean you should throw your hat into the ring, the sharks will bite till there's nothing left.
I also can't figure out why I get all kinds of "it's really hard" and "be very afraid" comments on HN.
With finance, high voltage electronics, and explosive chemistry, you can have very high cost consequences if you screw up. And people often delude themselves in finance.
There is a also a return aspect in finance. You need a large amount of starting capital until 80hrs/wk of work will outpace what you make 80hrs/wk in your job.
For example, lets say you make $250k/yr as a smart engineer. We assume best case scenarios and say you make %10/APR (very generous) over the index fund return. You would need $2.5million in starting capital before you can start matching your working self in returns. Most people don't have $2.5 million lying around. You would get better returns starting a business or investing in yourself and leaving your savings into index funds.
Maybe I don't want to invest but simply want to understand how math is used to make trades without human decision making involved once the algorithms are written.
The math people (Merton, Scholes) saw the craziness, pulled enough of their money out in time, and didn't lose it. The finance people (first and foremost Merriwether) were those who believed they are smarted than everyone and went bankrupt.
They did not use math at the time they lost money. They were were essentially gambling (doing "risk arbitrage", which is all risk and no arbitrage).
The crazy thing about LTCM, and the thing that everybody overlooks is that LTCM didn't die by bankruptcy...they died because of the systemic risk of their portfolio size and the subsequent intervention from the federal reserve. They had $100B under management, but only lost $5B in 4 months. It was a major catastrophe, sure, but it was only major because of the implications from its absolute size. A 5% drop in 4 months is something that can be recovered from on a personal portfolio level or even a small hedge fund level...but at LTCM's size it was endangering the financial system as a whole because it was threatening to bankrupt overleveraged institutional investors.
Jane Street Capital, while very opaque about what they do, has given me enough room to believe that LTCM has inspired a lot of their strategy. This always makes others perceive me as a quack that doesn't like history, but if another LTCM came around that was using the same strategy but on a much smaller scale and with a well spelled-out liquidation strategy, I would invest. In fact, I would probably bet big on it (>50% of my portfolio).
Nobody is gonna touch it though, because everybody is so conservative in finance. "We're gonna follow LTCM's strategy" isn't a sales pitch, it's a punch line. But outside of finance, there is a ton of precedent for monumental successes with an idea that has failed before. And I think LTCM is one of those ideas.
https://www.ted.com/talks/jim_simons_a_rare_interview_with_t...
http://www.forbes.com/sites/jaysomaney/2015/08/24/is-our-sto...