Defending the backroom genii

Professor William Perraudin, head of Tanaka Business School’s Risk Management Lab, has been working with producers of BBC Radio 4’s More or Less programme.

Each week the programme explores the numbers behind topical news stories and to link the mathematical to the everyday. 

Professor Perruadin was interviewed about quantitative analysts or ‘quants’ – an increasingly important part of the City’s workforce.  Quants use detailed mathematical models to understand markets and so make informed trading decisions for their clients. 

These models reflect the highly complex nature of modern financial transactions and have recently come under attack.  Some feel the models are too confusing for most in the City to understand and so adversely affect transparency and informed decision making.  Therefore the role and influence of quants in the current liquidity crisis of the markets has come under some close examination.

Professor Perruadin, who holds a Chair in Finance in Tanaka, one of the most quantitative business schools in the country, was interviewed opposite Paul Wilmott, a trainer for quants and web commentator, on whether quants were to blame for current financial turmoil in the markets.

Professor Perruadin defended quants as enabling financial institutions to behave in efficient ways, committing as little capital as possible to their activities. He said that this “has allowed relatively small competitors to take on the larger institutions in the provision of financial services and led, in turn, to cheaper loans.” Adding a note of caution that: “If we returned to old fashioned ways of trading, the terms of borrowing would be far worse.”  He explained: “The quants are a fairly innocent part of all this,” as senior managers are still responsible for decisions about taking on risk.

The programme also interviewed William Hooper a London quant, David Harding at Winton Capital Management and Paul Kedrosky, US hedge fund director on the matter. Follow-up comments from listeners and the programme can be found at:

http://news.bbc.co.uk/1/hi/programmes/more_or_less/7112919.stm