Definition
Quantitative analysis applies mathematics, statistics, and computer science to financial problems. Quant approaches include factor models, statistical arbitrage, machine learning, risk modeling, derivative pricing, and algorithmic trading. Modern quant finance emerged from physics and engineering talent migrating to Wall Street, bringing rigorous mathematical modeling to previously intuition-driven markets.
lightbulb Example
A quantitative analyst builds a factor model identifying 50 statistically significant predictors of stock returns. Machine learning selects the optimal combination, backtesting on 20 years of data shows 3% annual alpha with 0.8 Sharpe ratio before transaction costs.
verified_user Key Points
- Applies math, statistics, and computing to finance
- Used in pricing, risk management, and trading
- Machine learning expanding quant capabilities
- Backtesting validates models on historical data