Futures trading often attracts people with math or physics training. From an investor’s point of view, this means that a manager has very impressive credentials but it may not be easy to understand how the academic background translates to the down-to-earth activity of trading.
We wanted an example that illustrates this transition in an easy-to-grasp way, to demystify it as much as possible. After the crisis of 2008, there were complaints that complicated financial instruments, designed in the abstract by mathematicians, wrecked havoc on the system. Does the trek from math and physics to finance work? Why and how does it work?
Alexei Chekhlov graciously took the time to explain the connection, as he sees it, between his earlier work in physics and the investment approach he subsequently developed. The five main themes he highlights below are determined by his particular experience and don’t necessarily cover all the issues.
Still, these themes may be used as signposts for a conversation with a quant. One intriguing point is how human actors in markets differ from molecules in physics. This is where irrationalities – the topic of behavioral finance – come to play.
Mr. Chekhlov worked on theoretical physics in the Soviet Union before coming to the US. He has a Ph.D. from Princeton University in applied and computational mathematics and teaches financial price analysis at Columbia University’s mathematics department in an evening class after his day job managing Systematic Alpha...
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