Quantitative finance in disrepute for financial collapse

Explain the field of quantitative finance in disrepute for biggest financial collapse in all decades.




In early August 2007, some hedge funds using quantitative strategies experienced losses upon certain a scale as to bring the field of quantitative finance in disrepute. From after that, and through 2008, trading of complex derivative products into obscene amounts using simplistic mathematical models approximately brought the global financial market to its knees: Lend to the less-than-completely-creditworthy for home purchase, repackage these mortgages for selling on by one bank to another, at every stage adding complexity, combine along with overoptimistic ratings specified to these products by the ratings agencies, along with a dash of moral hazard thrown in, base this all on a crunchy base of a morally corrupt compensation scheme and you contain the recipe for the biggest financial collapse in all decades.

Out of this many people became extremely rich, while in many cases the man in street lost his life savings. Financial modelling is what made it seem all so safe and simple.

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