The term “quant” is a colloquialism for a type of individual working in the field of finance and investment planning, who chiefly employs quantitative (mathematical, especially statistical) methods of analysis in his work.
ETYMOLOGY: The root “quant” derives from the English word family that includes the verb “quantify,” the noun “quantity,” and the adjective “quantitative.”
All these words derive from the Latin interrogative adjective, quantus, meaning “how big?” or “how much?” An interrogative noun and a relative pronoun are then derived from the neuter form of the adjective, quantum.
USAGE: The quantitative theories used by quants in their day-to-day work were mostly invented by academic economists in the period following World War II.
However, the theories in question did not percolate into the fields of finance and investment until a couple of decades later.
By the 1980s, quantitative methods were beginning to become more common and more widely accepted on Wall Street and elsewhere.
The tag “quants” began to be applied to young, mathematically sophisticated recruits to the fields of finance and investment during that same decade, but did not become widely known to the general business press–reading public until the early 2000s.
In 2004, Emanuel Derman’s wrote My Life as a Quant: Reflections on Physics and Finance, which helped to make the formerly recondite slang expression “quant” into a widely recognized buzz word.
Among the many subfields of finance and investment management which constitute the primary domain of quants, we may mention the following types of financial products:
- fixed-income derivatives
- interest-rate derivatives
- credit derivatives
- “exotic” derivatives
- real options
- employee stock options
From a mathematical point of view, the most important factor underlying the expected performance of these financial products is the interest rate.
The two main models used in the quantitative analysis of interest rates are known as the “short-rate model” and the “Heath–Jarrow–Morton (HJM) framework.”