Quants | The Alchemists of Wall Street | VPRO documentary

Quants are the math wizards and computer programmers in the engine room of our global financial system who designed the financial products that almost crashed Wall street. The credit crunch has shown how the global financial system has become increasingly dependent on mathematical models trying to quantify human (economic) behaviour. Now the quants are at the heart of yet another technological revolution in finance: trading at the speed of light.
What are the risks of treating the economy and its markets as a complex machine? Will we be able to keep control of this model-based financial system, or have we created a monster? A story about greed, fear and randomness from the insides of Wall Street.
Originally broadcasted by VPRO in 2010.
© VPRO Backlight February 2010
On VPRO broadcast you will find nonfiction videos with English subtitles, French subtitles and Spanish subtitles, such as documentaries, short interviews and documentary series.
VPRO Documentary publishes one new subtitled documentary about current affairs, finance, sustainability, climate change or politics every week. We research subjects like politics, world economy, society and science with experts and try to grasp the essence of prominent trends and developments.
Subscribe to our channel for great, subtitled, recent documentaries.
Visit additional youtube channels bij VPRO broadcast:
VPRO Broadcast, all international VPRO programs: / vprobroadcast
VPRO DOK, German only documentaries: / @vprodok
VPRO Metropolis, remarkable stories from all over the world: / vprometropolis
VPRO World Stories, the travel series of VPRO: / vproworldstories
VPRO Extra, additional footage and one off's: / @vproextra3443
www.VPRObroadcast.com
Credits:
Director: Marije Meerman
Research: Gerko Wessel
English, French and Spanish subtitles: Ericsson.
French and Spanish subtitles are co-funded by European Union.

[@vprodocumentary]

NEWS NEWS NEWS! We have a vpro documentary, Telegram channel! Check it out for new uploads, spread the word and join! 😉 t.me/vpro_documentary

[@booonnoob7950]

vpro documentary can you make another quant documentary?

[@592sunrise]

I like to learn new things..I love you vpro

[@Marmelademeister]

In my humble opinion as a mathematician, the problem is not the quants modeling financial markets. Those are smart and highly capable fellows. The problem is the decisionmakers in banks, who rely too heavily on the models. No-one can predict the future. Also that's not what quants do. They predict a distribution, not a value, because prediction a value is not possible. Also it's known that the classical models have shortcomings. The quant business is all about doing the best you can to minimize risk. It's better to use a good model with some shortcomings than no model.

[@JimMcCann500]

anyone watching this in March 2020? This documentary might as well have been made 2 weeks ago.

[@charlie7333]

I m watching this because of the Corona induced gfc

[@jimwatchyyc]

The world needs a cooperative stock exchange, or the new “Long Term Stock Market” to turn out to be viable.

[@MrJigga420]

game never changes, just the people. be safe mates.

[@micheleeve5100]

Well met, and good luck - UK

[@CultofThings]

It wasn’t?

[@mingy9309]

I did maths from a top university and then did Masters in financial maths - most of the material was useless in the real world. After I just liked the general outline of finance/investing concepts which are far more easier to understand and practical. Later did a Masters in Real Estate Investment & Finance and found that even more practical to life. The only thing a company will care about if they do not understand a Quant with PhD and years of programming/modelling is if he can produce models that make the company money! If the can create correlations between certain data points to give an early trade advantage for the hedge fund. Otherwise it is all useless. In the academic world the concepts are celebrated but in the real world it is all about the $$$'s!

[@TaoPiet]

"In the end you can not fool nature" Richard Feynman

[@duudleDreamz]

Great video. Financial mathematicians/computer scientists providing transparency to what really happened during 2008 financial crisis

[@paultruong154]

"He's my quant"

[@jamiepaul2673]

I think there's only a handful of people in the world that truly understand how some of these derivatives work

[@revengetrader]

Wow. This is an amazing film about the craziness on Wall Street. Well Done! As a trader myself, this film is a wonderful look at the inside world of Wall Street and the absurdity of the ludicrous optimism and incorrect assumptions made on the street.

[@Nick-hg1ys]

Too drunk to truly appreciate this at the moment but I will watch it when I sober up

[@vprodocumentary]

Better now?

[@TheCatHatRat]

You sober man?

[@schrodingerscat3912]

he's got a hang over guys

[@HtmlL0v3r]

lol

[@glenndewulf5380]

Some say he's still looking for his computer

[@DaryllDickens]

Fantastic video. Love how they detailed the banking element as well as the software developers' perspectives. Being a software developer myself, I can relate entirely. Kudos for the great work!

[@TheEightSixEight]

Amazing. Uploaded on March 4th, 2010, and date of 2010 Flash Crash, May 6th.

[@Theodore-W]

True. the same as what Wilmott said in the video.

[@GagnezVizz]

Thank you for posting this video! Much appreciated!! -G

[@herranonym5725]

I love the style of this documentary! One of the best I've seen IMO.

[@vprodocumentary]

Thanks Markus, did you see the other documentaries that talk about finance? Check out our playlist! : kzbin.info/www/bejne/bH7UkKmoebGBbdk

[@junyoung458]

28:20 hmm... I'm studying mechanical engineering and I am also interested in financial engineering. But this made the point about the difference of physics and financial mathematical models...

[@gintaras58]

I liked this documentary very much. Thanks for uploading! I am an amateur trader of stocks in Europe (in Lithuania). I have never seen such a beautiful presentation of reality - stock "laws" are not Newtons laws and stuff like that...

[@jagatdave]

I would caution you about anything that you read through google.. wiki youtube.. Trump is right about one thing.. Lots of fake news. lots of fake ppl..lots of fake theories..

[@ChampionMobile]

“Some men wrest a living from nature. This is called work. Some men wrest a living from those who wrest a living from nature. This is called trade. Some men wrest a living from those who wrest a living from those who wrest a living from nature. This is called finance.” - ~ Fr. Vincent McNabb

[@burlingtonpark4136]

excellant documentary. thanks

[@sweetdosage]

wow....very mind blown - great admiration for these guys.

[@dragondon]

Mike Osinski was my Prep School Roommate at Saint Andrews, Boca Raton, Florida. We graduated together in 1972. He was always brilliant and a great athlete as well. He was my best friend.....a thousand years ago.

[@AndreAndFriends]

Hello from Mr. Kosinski. Almost related. All the best mate.

[@tommyakagodjones7642]

donald wilson and a good lover?

[@SWIFTerMKD]

Vpro , you are doing an amazing job with this documentaries !

[@bySander]

Thanks

[@vprodocumentary]

Well, thank you for your comment!

[@theyangrider5905]

This has been the best quant video I've ever seen. definitely worth a second watch.

[@ChuckEarnest]

+Alex Yang I've already watched it 3 times and I found it at lunch today. Based on this video I think I definitely need to be in this.

[@diogeneslantern18]

I can hear Emanuel Derman's South African twang the second he spoke. It never leaves you!

[@rec1962]

Grotesque accent

[@kellingtonlink956]

Thanks for the brilliantly well thought out video.

[@ClarityRyZze]

So fascinated about quantitative analysis. Im so happy i discovered it before deciding on my masters degree. Just started to study finance and in my free time i lookup courses about linear algebra and statistiks until i am ready to start the quant course!

[@waxk9]

ClarityRyZze is there a masters on quantitative analysis

[@man4hire]

I wish I could listen to any of these two men for at least an hour.

[@floop2935]

I can’t believe a decade ago was 2010

[@do_not_replytothisemail1421]

18:23-19:35 Most important point in this video. It's Wall St. in a nutshell, especially private equity and hedge funds that benefit from the carried interest loophole.

[@Atombender]

Except it's not. The difference between ordinary investment funds and hedge funds is that hedge funds also use their own money to invest. They make an investment and at the same time they invest in something on the other side of the "hedge".

[@bamaking45]

Love the book. Now I just found this doc.

[@dwight4k]

What book? My life as a quant?

[@srimansrini]

This is an informative documentary about the Quants - the people who extensively use mathematical model to predict the stocks in the share and financial markets. Strongly recommended for the people who wants to know the intricacies of financial world.

[@ThaFacka]

fantastic! this represents the same view that I have about the micro world of finance ever since.

[@pibruks]

Amo este canal

[@vprodocumentary]

Gracias pibruks! Saludos desde los Países Bajos!

[@OBSESSED1954]

These guys are AMAZINGLY SMART!!!!

[@dennismichael7133]

First time I watched these I dozed off before the 15th minute, now I'm amazed at what I was missing. Thanks YT algo.

[@yhp99]

Quantitative finance will only continue to grow. As Derman says in the video, it is a question of incentives. Profit will always be a bigger incentive than most anything else at any moment. So ultimately we need a game changer that will systematically prevent toxic conditions. We need to mature as a capitalist society otherwise we might not make it the next time around.

[@bryanalexander1889]

This opened my eyes alot cause I'm undecided to be in the firm world, great doc!

[@idivergentes9031]

Great video, thanks !

[@Cypherdude1]

My impression of the quant/programmer who quit and went into the oyster business is, IMHO, he simply got tired of programming. People can get tired of doing the same thing day after day. Programming and higher math can be very mentally taxing. Of course, he went into something radically different. IMHO, he simply burned out.

[@P.willow]

This was 10yrs ago. My gosh.. Time had certainly slowed down 🤦‍♀️

[@DsVibe]

Tonally, you refer to yourself similar to my future self from a few years beyond today. 09 26 19. That you aim to empower beneath the surface (of financial success) while also shattering the vastly unrealistic paradigms of those most linearly-oriented upon the surface ... is appreciated, by 100% of the aforementioned on some level within them. We thank you.

[@ellabrendairianto5211]

This helps more than school

[@maxsteelwe]

these people are really smart !

[@berserkus]

"Next crash could be in minutes" - nicely said. This guy is totally right. Remember the may 6 dive on wallstreet

[@592sunrise]

I am amazed..

[@steveturpin4242]

Nice one...thanks.

[@wallstreetbravado346]

"Hey!!! I like your channel. It is content rich. Keep making informative videos. ▶️📺🎥🙌🏽💥"

[@ultraverydeepfield]

18:23 nails it

[@andyb1336]

Very insightful post you're one wise guy, and I don't say that often.

[@HaggardFlea]

The animation at 15:28 is unreal, love it

[@axe863]

I hope that helped :). Integrating this requires knowledge of stochastic calculus. The mean, variance, kurtosis, skewness etc of this process is derived from it's characteristic function

[@axe863]

The primary negative effect of the quants was not the extra-ordinary mis-pricing of risk (Gaussian constant volatility vs heavy tailed fluctuations w/ clustering & nonlinear codependency etc), it was the systemic fragility induced by synchronizing the system coupled with risk averse agents that suffer from informational imperfections

[@joelkavanagh1464]

thanx again vpro

[@bonefork7472]

Excellent film.

[@z7ch]

Nice touch with Beethoven's 7th near the end describing Wall St's transformation :)

[@Neanderthalcouzin]

I like the fact that the English guy had come to the realization, and was pointing out, that it was all ultimately meaningless and contrived, and bogus, and they would be far better off dedicating their talents and brains to actual science rather than this financial contrivance.

[@enotdetcelfer]

Has an almost Ghost in the Shell vibe to it. Nicely done folks, was thought provoking as I study this stuff

[@vprodocumentary]

What was wrong with the documentary?

[@solomon1486]

thank u

[@joycekoch5746]

On this April Fools Day it warms my heart to know Jerome Powell as such Alchemy to protect us all from financial risk.

[@zensir]

This is like watchin the real life version of the "Pi" movie, Darren Aronofsky was ahead of time back in 1998!!

[@hindenburg2006]

I forgot about that movie!

[@Marc_Masters]

Interesting work

[@TheSMFTRADER]

Nice work!

[@cerebralcaustic]

Joel Tillinghast, fund manager at Fidelity, says the problem with quants can be too much abstraction. They get so caught up in the math they forget they're dealing with shares of a company and not just abstract numbers.

[@benzbubblecat]

This video is far out, I learned a lot. I'm doing a masters thesis in computational economics, so I'm sort of an accidental quant.

[@alfredo40peru]

This documental was the inspiration of producing The big short

[@ruralkiller]

i see your point and it is a good one...

[@dwight4k]

I can't believe that I only found this video yesterday.... 6 years later :-/

[@nikolaybonapartov7379]

Me too! Just found it yesterday man!

[@vprodocumentary]

Better late than never!

[@vprodocumentary]

Just like our comment. Oo'

[@abz4852]

Better than me at least, 8 years later~

[@vprodocumentary]

Abdullah Yakub, did you like the documentary?

[@infiltr80r]

39:20 Two months after Wilmott mentions the "next crash could be within minutes", it happened. Being an algo trader myself, the "speed" of markets is always increasing - it takes less and less time to make the same wave pattern.

[@Auricson]

very good video

[@hwy9nightkid]

17:43 - This is the krux of human nature interacting with the financial market..

[@anaselghafari4146]

There is an unjustified mixing of two different things: 1) quant work (quantative analysis) of the like used to price and CDOs and CDSs and analyze portfolios, 2) High frequency trading. The first 37 minutes are focused on quant work, and then (@ 37:45) someone mentions high-freq trading and suddenly the rest of the documentary becomes about that! That is a different topic altogether. The only commonality is that math and computers are involved in both! In fact, the areas where quant work was most infamous, the pricing and risk modelling of CDOs and CDSs, have been entirely devoid of high-frequency trading. The reason is that those derivatives are not very liquid (i.e. do not change hands every minute of the day) and HFT, by definition, requires very liquid markets.

[@UnhingedBecauseLucid]

The overarching subject matter is the use of intellectual masturbation veiled in the aura of science to lend to it a purpose it never had legitimacy to have: extortion of unearned, incommensurate amounts of wealth relative to the service provided. It lead to a point where at the height of the crisis, the financial sector was a blob eating 41% of american total corporate profit.

[@JohnSmith-to5ow]

Unhinged, That is a brilliant point that I have felt, but never articulated in my own mind. There is an aura of "brilliance" around these people and this work. Of course they deserve it, they are brilliant! But really, what does deserve have to do with it? I could invent a machine that turns puppies into gold bricks. Should it be used?

[@CHURCHISAWESUM]

@@UnhingedBecauseLucid hahahaha don't get mad at the quants if that's what you're mad about. Quants are at the bottom pay wise and do the most work tbh. You should be mad at the bond traders if that's your criteria. Or better, the risk management executives

[@jagatdave]

@@UnhingedBecauseLucid how did u get 41% number. what do u mean when u say.. eating corporate profits?

[@saveriosalemme5366]

The only reason why I can understand this is because I watched “The Big Short” and “Margin Call” multiple times. 🧐

[@ifukill7538]

Big sort

[@2424151tamroes]

show us this wonderful model and allow us mere mortals to gaze in awe!

[@butterbean2789]

Brilliant

[@P.willow]

This is wayyyy above my brain wave even my postcode

[@CarlosRomeroconnect]

Amazing video

[@AzxE10]

God damn, they really make being a financial engineering student sound like a nightmare. Actually it's a whole lot easier than studying physics or pure math.

[@dwight4k]

+AzxE10 Mr. Derman doesn't look that confident in his methods. Is the field still worth going in to?

[@TheJazzikpeng]

Exactly

[@Alfetto8]

Yeah tell that to the physics and math undergraduate students doing the MMF with me, struggling as hell.

[@TehGettinq]

Most students that are doing a masters in financial engineering (which is what im guessing you are refering to), are initially physics/math grads.

[@alfredhitchcock45]

You are right in that sense: that financial math is "soft" compared with "hard" maths like physics and pure math BUT then again, always remember what the great Isaac Newton said: that he can compute the movement of the stars but not the madness of men. He is brilliant with physics but flunked at investing. So how in the world can you explain that?

[@marcelozilotti]

18:25 really interesting graphic and explanation

[@bennymarshall1320]

I used to tease my economics friends at uni for their endless straight line graphs haha.

[@schrodingerscat3912]

35:21 i like this quote. Paul Wilmott is so awesome, this guy is something else

[@dwight4k]

+I am jk It's funny how Mr. Derman doesn't seem that confident in the field quantitative finance, but he still teaches those classes.

[@jasonmccool4342]

That was well done

[@AndreAndFriends]

40 min. The most important.

[@manmanman784]

The problem is not with the quants, it's with the people on top not understanding the math!

[@hanksjim4421]

wrg

[@Evan-McM]

We're in a transition period, I think in another decade or so this won't be so much of a problem anymore.

[@dogestranding5047]

+manu el Quants can't look at the underlying businesses

[@veerbhadra994]

manu el .. indeed... including their colleagues in Investment Banks

[@veerbhadra994]

Bryan Wheelock ... really ?... #JimSimon

[@nishanthvishnu2919]

Where did they get the background scores from - they're awesome?!

[@koonerd321]

am i a bad person if i think these guys are awesome!!!!

[@HutRadio1]

Very well done. I too, am a Quant.

[@distroyaar]

soundtrack from Moon (2009)!

[@MrAnimeStealth]

"ya dont..." "...no" "well we were really dumbing it down were'nt we" "yeah" "oh dear"

[@fleischwolf82]

8 years old but still very interesting

[@olivergeron8180]

35:40 best line ever!

[@MarcFromNijmegen]

Beethoven's Symphony no.7 in A major, Op.92

[@harendrasingh_22]

28:37 true. Its just too emotional a thing !.

[@rock3tcatU233]

These guys are GENIUS, trading hot air for real money. I want to do that as well! :D

[@TimSchaeferMedia]

A great movie about Wall Street, CDOs and trading.

[@carterjwillow3079]

I feel working from home is key to wealth creation, considering how remunerative investing on the online market can be. I begin to wonder what if I got into it much earlier on..

[@will81454]

This has the theme music from moon running through it

[@gerridela]

Oh I see thanks! actuary new to stochastics!

[@man4hire]

Very interesting. I'm an econ undergrad, and I don't think any of our further time series / econometrics courses cover stochastic processes. Would you imagine there would be some prerequisites like straight maths for quan(tative finance?) or would a solid econometrics course be considered? Whats your opinion on econometrics.

[@jptbaba]

39:33 Next crash could be in minutes: flash crash

[@lladyoflight3791]

"EVERYBODY IS WORKING TO SERVICE THE BANK" WOW!!!!

[@axe863]

The complexity of a cash CDO is higher than that of a diversified portfolio containing securities with varying tail thickness and co-dependencies because it, also, depends on the opacity of subordination (supersenior tranche, PIK etc) , the width of tranche (thicker tranche ==> lower macro-sensitivity, thinner tranche==> high macro-sensitivity), the weight of nth order securitized securities in the reference portfolio (CDO, CDO^2..CDo^n=> a tranche included CDO's==> macro-hypersenitivity)