How i Became a Quant

How I Became a Quant
Insights From 25 of Wall Street’s Elite

Richard R. Lindsey Barry Schachter

John Wiley & Sons, Inc.

How I Became a Quant
Insights From 25 of Wall Street’s Elite

Richard R. Lindsey Barry Schachter

John Wiley & Sons, Inc.

Copyright

C

2007 by Richard R. Lindsey and Barry Schachter. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken,New Jersey. Published simultaneously in Canada. Wiley Bicentennial Logo: Richard J. Pacifico No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the priorwritten permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, (978)-750-8400, fax (978)-646-8600, or on the web at www.copyright.com. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ07030, (201)-748-6011, fax (201)-748-6008, or online at www.wiley.com/go/permissions. Limit of Liability/Disclaimer of Warranty: While the publisher and the author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantabilityor fitness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation.You should consult with a professional where appropriate. Neither the publisher nor author shall be liable for any loss of profit or any other commercial damages, including but not limited tospecial, incidental, consequential, or other damages. For general information on our other products and services or for technical support, please contact our Customer Care Department within the United States at (800)-762-2974, outside the United States at (317)-572-3993 or fax (317)-572-4002. Wiley also publishes its books in a variety of electronic formats. Some content that appears in print maynot be available in electronic formats. For more information about Wiley products, visit our Web site at www.wiley.com. Library of Congress Cataloging-in-Publication Data How I became a quant : insights from 25 of Wall Street’s elite / [compiled and edited by] Richard R. Lindsey, Barry Schachter. p. cm. Includes index. ISBN 978-0-470-05062-0 (cloth) 1. Quantitative analysts–UnitedStates–Biography. 2. Wall Street (New York, N.Y.)– Biography. 3. Finance–Mathematical models. 4. Finance–Computer programs. 5. Financial engineering. I. Lindsey, Richard R., 1954- II. Schachter, Barry. III. Title: Wall Street’s elite. HG172.A2H69 2007 322.63 2042–dc22 2007002383 Printed in the United States of America. 10 9 8 7 6 5 4 3 2 1

Rich would like to dedicate this book to his daughter Nancy, age 4, inthe hope that she can find a partial answer contained herein when she starts to wonder what he did when she was growing up. In the same spirit, Barry would like to dedicate this book to his daughter Devra, age 18, who for many years has been asking, “What do you do at work, Daddy?”, in the conviction that she will find in its contents a more satisfying answer than she has invariably receivedpreviously, specifically, “I worry about stuff.”

Contents

Acknowledgments Introduction Chapter 1 David Leinweber President, Leinweber & Co. A Series of Accidents Grey Silver Shadow Destroy before Reading A Little Artificial Intelligence Goes a Long Way How Do You Keep the Rats from Eating the Wires Stocks Are Stories, Bonds Are Mathematics HAL’s Broker Chapter 2 Ronald N. Kahn Global Head of...