Nerds on Wall Street: Math, Machines, and Wired Markets

Chapter 2. Greatest Hits of Computation in Finance

A computer does not substitute for judgment any more than a pencil substitutes for literacy. But writing without a pencil is no particular advantage.

—Robert McNamara

The Journal of Portfolio Management (JPM)^[] is one of the more upscale investment management publications around. For $500 a year, you get four issues, nicely bound like oversize paperbacks, without any advertising. It's a crossover between rigorous academic publications, like the Journal of Finance, and trade magazines, like Wall Street & Technology, that have shorter staff-written articles and lots of ads. On significant anniversaries, JPM assembles special issues with invited pieces from both academics and practitioners on relevant topics.

^[] An earlier version of this article appeared in the Fall 2005 issue of the Journal of Portfolio Management ("If You Had Everything Computationally, Where Would You Put It Financially? Thirty Years of Computation in Finance"). It is reprinted with permission.

JPM did this for the thirtieth anniversary issue in 2004. Some touched on the changes brought about in investment management by computation and where we can expect significant progress in the future, but only one was explicitly about technology in finance.^[] The editor invited me to expand on this topic for an upcoming issue. This chapter is based on that article.

It is illuminating to look back on past technological breakthroughs of the century to see which ideas have ...