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12

In fact you have three papers available to go further: The Avellaneda-Stoikov one, with proper model and an approximate solution The Bayraktar-Ludvkosli one, with a solution for the linear utility function The L-Guéant-Fernandez one, with a full solution for a generic utility function I prefer the last one ;{)}


10

One might probably mention Yale's Endowment under David Swensen which generated returns of 13% per annum over the past two decades (as compared to the 8 or 9% average return of college and university endowments). Now, I would not label Swensen's approach to portfolio management with a pure absolute return strategy tag but he definitely uses some insights ...


8

That's a tough question to answer. The "quant business" is a business. Some quants sell low-grade/low-volatility results, some sell fast-moving/unpredictable results, some sell industry targeted results, etc. It depends on what the buyer wants to buy. There's a market for everything. Haven't we all met people that think they're going to win the ...


7

I believe the reason no one has been able to come up with an example of a quant fund employing the academic factor-based approach with stellar performance is because there aren't any (at least not any with decent sized AUM). For a while, now, there has been a debate amongst institutional investors and quantitative professionals as to whether quant is dead. ...


4

If it was possible to simply pick up some papers and adapt them and produce returns that trade would quickly disappear since it would be an inexpensive way for firms to produce excess returns. If you have a factor that produces alpha you had best not publish it or all returns associated with it will disappear. I have found most of the value in the academic ...


3

"Individual Craftsmanship"...I am not sure how you want to apply this skill set later. Craftsman to me means someone who simply applies a tool set, it does not imply (according to the dictionary definition) whether professionally to earn money or in order to teach or treat it as a personal hobby. So please let me comment on all three: Professionally in the ...


3

@Tal and @Patrick point out that there are more than two subsets of investors. If we divide the active investors into smart and dumb, we can reconcile their results (i.e., they only look at active, institutional investors). But even if there are only two subsets, their measure is still different than Sharpe's. Sharpe's argument is an identity for stock ...


3

Tal is correct that "other" investors can remove the zero-sum constraint. But that is not the only possibility. As the article linked to by http://www.portfolioprobe.com/2011/11/07/some-new-ideas-in-financial-mathematics/ points out, an index is just a trading strategy. There is no reason to suppose that it is an optimal trading strategy. One reason we ...


2

it depends on how applied the class is. A deep understanding of stochastic calculus is not required for "P-Quants", the type of person that lives in the physical word of forecasting and risk. That being said understanding the type of models that get used by the Q-Side (requiring lots of stochasic theory) is a useful skill to have. Like John said, if you ...


2

Thanks for pointing out the article. Their findings make for very interesting food for thought, particularly from a marketing and business strategy perspective. I'm not sure what you realized, but I think the way to reconcile the two statements is to recognize that the universe of equity investors does not break down precisely into active and passive fund ...


2

This is the question I've been waiting for! I work at a large outsourced CIO shop and spend a lot of time evaluating different managers and the strategies they come to us with. I also know a number of people I went to school with that are now at quant funds. There are a couple of important points to keep in mind: Every respectable quantitative manager has ...



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