The Physics of Finance

The implication was clear: physicists on Wall Street were responsible for the collapse.

After losing his hat in a market collapse in seventeenth-century England, Isaac Newton despaired: “I can calculate the movements of stars, but not the madness of men.”

They had some of the fastest, most sophisticated computer systems in the world programmed to solve these equations and to calculate how much risk the funds faced, so that they could keep their portfolios in perfect balance. The funds’ strategies were calibrated so that no matter what happened, they would eke out a small profit — with virtually no chance of significant loss. Or at least, that was how they were supposed to work.

He’s predicted the unpredictable, and made a fortune doing it.