Future of Financial Mathematics?

An anonymous reader writes "Nassim Nicholas Taleb, a famous 'Quant,' has long been a strong critic of the use of mathematics and statistics in the financial markets. He has been very vocal in his books The Black Swan and Fooled by Randomness. In his article on edge.org, he says 'My outrage is aimed at the scientist-charlatan putting society at risk using statistical methods. This is similar to iatrogenics, the study of the doctor putting the patient at risk.' After the recent financial crisis, wired.com ran an article titled 'Recipe for Disaster: The Formula That Killed Wall Street' in which the quant David Li and his Gaussian Copula were crucified — we discussed it at the time. Now, I've recently been admitted to a graduate program of good repute in Computational & Applied Mathematics. There is a wide range of subjects in which you can pursue your PhD, one of them being Financial Mathematics. I had a passing interest in it for quite some time. In the current scenario, how advisable it is to pursue a PhD in this topic? What would my options be five years down the line? Will the so-called 'quants' still be wanted by the banks and other financial institutions, or will they turn to more 'non-math' approaches? Would I be better off specializing in less volatile areas of Applied Mathematics? In short, what is the future of Financial Mathematics in light of the current financial crisis?"

Comments

Forensic economics to the rescue

[sgt_doom]

Prof. Taleb's figure of the banks loss of $1 trillion is phenomenally understated, but the Prof. is usually rather moderate in his figures, so I can't fault the brilliant professor for that. (I would say it was more in the range of many trillions.)

The more crucial situation is that we are in the midst of an enormous battle to rend our existence down to pure feudalism - even further down from the neofeudalism which prevails today (does any society which would truly espouses progress - which few do today, and definitely not the USA - still have "interest" and "rent" ???).

Capitalism is dead. The economy is over, yet Geithner, Summers and Bernanke continue on with the Bush Administration's neocon economic prescription - super-massive transfer of wealth to the upper 1/10th of 1 percent and reducing the rest of us to serfdom.

It is far more than simple errors in financial math; essentially it is a planned design for an historically colossal fraud (and NO! - these aren't "exotic instruments" which no one understands - Ponzi schemes and fraudulent tontines are comprehensible to most of us). The phrase from that Wired article to focus on - and to try to fully understand - was that an unlimited number of credit default swaps may be written against one borrower (disclaimer: quote from memory, may not be exact)- which says it all.

Marx was an optimist - believing that industrial capitalism would end up supreme, dominating the financial aspect and utilizing it to its own ends. Instead we have financial capitalism, which seeks to minimize and trivialize industrial capitalism (read technocracy, or something to that effect), which is nothing but a gigantic scam and fraud.

Should those interested, follow Prof. Michael Hudson, the most brilliant banking historian and financial economist in the Western Hemisphere. Prof. Taleb had it perfectly right in a past NPR interview when he stated that "..the banks have taken over and the only thing socialized is their debt." (BTW, that was the last interview I've ever heard on NPR with Prof. Taleb!)

Sgt. Doom's hobbies: network penetration & forensic economics