Tom Wolfe and the Birth of the Quant Revolution
A new documentary pays homage to an author who brought wit, sympathy and understanding to a field that’s changed how we invest today.
A new documentary chronicles the life of author Tom Wolfe.
Photographer: Michael Nagle/Bloomberg via Getty Images
Watching the new Tom Wolfe documentary, Radical Wolfe, I was reminded of the key role the author and journalist played in the development of quantitative finance. Academics trace the beginning of the field to research in the 1950s that would result in innovations like the capital asset pricing model in the 1960s and the Black-Scholes option pricing model in the 1970s. But those results would take decades to translate into financial practice.
Financial quants start their history in January 1961 when mathematics professor Edward Thorp gave a talk at the American Mathematical Society entitled “Fortune’s Formula,” outlining the secret for winning at blackjack.
Tom Wolfe, then a reporter for the Washington Post, had come across Thorp earlier and wrote a story about his upcoming talk, drawing the attention of the gambler who would bankroll Thorp as he went about proving his theory. That would lead to the publication of Thorp’s bestseller Beat the Dealer. Thorp capitalized on this early success to invent or perfect as a hedge fund manager in the 1960s nearly all the quantitative trading strategies in use today. All this was long before the first tangible academic product of quant research — the index fund — was launched, and before Fischer Black and Myron Scholes published the option pricing model that Thorp had been using to trade.