Marco Lopez de Prados, a senior managing director at Guggenheim Partners, came to talk to Stevens students on Wednesday, Nov. 30 about the integration of mathematics and finance, and how certain economists’ choice of math may be inadequate for social situations. Prados discussed what it takes for practitioners and students to increase their chances for success in modern day finance.
He began by providing an overview of how mathematics is involved in finance. However, he explained that there is a chance that the wrong math is being used.
“Geometry, linear algebra, and calculus are just three subjects, but there is more math being used.” These subjects can be used in interesting applications in Newtonian Physics; however, in economics, their application leads to several different problems: no repeating experiments, a single stochastic path, overfitting regressions becomes ubiquitous, and ultimately, financial markets are just complex adaptive systems.
“Economics is a highly mathematical field, but there is math outside of econometrics and statistics.” He added, “Most of the most successful fund managers are mathematicians. And nobody knows about them because they don’t want to be know about.”
Another big subject in finance is machine learning. Modern unsupervised machine learning methods study the structure of financial Big Data, and determine clusters of instruments that should share allocations. In a remarkable paper, De Miguel et al showed that the out-of-sample performance of the 1/N or “naïve allocation” beats the entire set of commonly used portfolio optimization tools.
Prados made the presentation interactive, debating with the finance and math professors and answering questions from students as well. He explained that it’s plausible to not partake in a traditional finance education and still be able to succeed in the financial world, especially for those with a heavy mathematics background.
This event was sponsored by the Stevens School of Business. To find out more, contact Kimberly Ding at Kding1@stevens.edu.
Be First to Comment