Risk 25: No more heroes in quantitative finance?

Scientific theories are supposed to be smooth processes, with progress building on progress. But sometimes a theory gets such a shock that it needs to be completely rethought – and quantitative finance is in the middle of such an upheaval

Vladimir Piterbarg, Barclays

Wistfully – perhaps slightly misty eyed – the top quantitative analyst of a leading international bank leans back in his chair and sighs. “It was the heroic age for the subject,” he says, of quantitative finance in the pre-crisis era. 

Back then, daring quants in banks on either side of the Atlantic dreamed up ever more complicated stochastic models for ever more complicated exotic option payoffs. Mathematicians and physicists poured into New York and London to make their fortunes, while