Practical analysis for investment professionals

Quantitative Methods


Holes in Some of Finance’s Critical Assumptions: A Dialogue with Massif Partners’ Kevin Harney (Part One)

Finance rests upon several critical assumptions that have logical holes. Among the assumptions are: Brownian motion and normally distributed outcomes. Here is a discussion of some of the effects caused by these assumptions.

James Montier: More Realistic Financial Models Incorporating Illiquidity and Leverage Are Needed

Financial theorists, policymakers, and practitioners created the financial crisis with “bad models, bad policies, bad incentives, and bad behavior,” said James Montier of GMO UK Ltd.

Does Quantitative Investing Have a Future?

After stumbling badly from 2007 to 2009, quantitative investing has enjoyed a nice run. Nonetheless, a recent CFA Institute member poll suggests that quant managers have a perception problem.

Rethinking the Risk-Free Rate, Exploding a Fundamental Assumption

There is no such thing as a risk-free rate of return, just as there is no such thing as our world without action. Yet, the concept of a bedrock expected rate of return is a good one in need of a better description that is more reflective of reality.

The Post Ratings Agency World: An Interview with Invictus Group’s Kamal Mustafa

A powerful alternative to traditional credit ratings is the scenario-planning approach developed by Kamal Mustafa, CEO of Invictus Consulting Group.

Book Review: Ben Graham Was a Quant

The roots of value investing can be traced back to the 1934 publication of Benjamin Graham and David Dodd’s classic, Security Analysis. Graham later disseminated his views to the general public in the highly regarded book The Intelligent Investor. The influence of Graham’s methodology is indisputable. His disciples represent a virtual who’s who of value investors, including Warren Buffett, Bill Ruane, and Walter Schloss. As a measure of his enduring impact on the field, a search of “Benjamin Graham” on Amazon.com yields more than 900 results concerning Graham’s writings and works about his investment philosophy. Given the success of the master and his students, it is no wonder that Graham remains an investor of immense interest to practitioners.

The Search for Value Continues

Thought leaders from academia and industry were in New York recently for two days of engaging discourse at a conference on Security Analysis and the Search for… READ MORE ›

Take 15: Evaluating Performance Attributions and New Models to Measure Risk

Carl R. Bacon, CIPM, a performance measurement specialist, discusses the evolution of performance attribution, the latest developments in performance measurement, and the issue of ex post risk.

Book Review: Models.Behaving.Badly

Emanuel Derman spent two decades at Goldman Sachs, making valuable contributions to financial modeling. Before that, as recounted in My Life as a Quant (John Wiley & Sons, 2004), he was a physicist. Today, Derman is the head of risk management at Prisma Capital Partners and directs Columbia University’s financial engineering program. He also devotes energy to combating the belief that security markets can be analyzed with the same mathematical precision as heavenly bodies and subatomic particles.



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