The Money Formula

CHAPTER 2Going Random

“We are floating in a medium of vast extent, always drifting uncertainly, blown to and fro; whenever we think we have a fixed point to which we can cling and make fast, it shifts and leaves us behind; if we follow it, it eludes our grasp, slips away, and flees eternally before us. Nothing stands still for us. This is our natural state and yet the state most contrary to our inclinations. We burn with desire to find a firm footing, an ultimate, lasting base on which to build a tower rising up to infinity, but our whole foundation cracks and the earth opens into the depth of the abyss.”

—Blaise Pascal, Pensées

“Random; a dark field where dark cats are chased with laser guns; better than sex; like gambling; a little bit of math, some finance, lot of hypotheses, a lot of assumptions, more art than science; an attempt to predict or explain financial markets using mathematical theory; the art of collecting rent from the real economy; mathematical rationalisation for the injustices of capitalism; much like math, physics, and statistics helped meteorologists in building technology to predict weather, we quants do the same for markets; well, I could tell you but you don't have the necessary brain power to understand it ^*Stands up and leaves^*.”

—Responses to the survey question: “How would you describe quantitative finance at a dinner party?” at wilmott.com

 

Quantitative finance is about using mathematics to understand the evolution of markets. One approach to ...