Katrina and the Quants

Interesting article in the NYT this Sunday about disaster insurance. Specifically, the articles discusses quantitative analysis of catastrophic events, and how investors and quants can profit from this analysis.

I find the timing of this article interesting, given the disastrous performance of many quant funds over the past month or so. Nonetheless, the article does a good job of explaining how quantitative analysis can generate significant trading profits if applied to a problem that's hard to price using conventional methodology.

I was also particularly amused, (and pleased,) to note the disdain that article subject John Seo has for the Efficient Market Hypothesis.

“These academics couldn’t understand the fact that they couldn’t beat the markets,” he says. “So they just said it was efficient. And, ‘Oh, by the way, here’s a ton of math you don’t understand.’ ”

Couldn't agree more.