ICR201: David Orrell, The Money Formula

In this episode of Informed Choice Radio, I speak to David Orrell, author of The Money Formula.

Listen to this episode to learn how the global economy relies on quantitative finance, whether financial instruments like derivatives and credit default swaps can be a positive force in the world or just a way for bankers to make huge amounts of money, how money created out of thin air becomes real obligations which need to be repaid, and whether we've now got a better understand of quantitative finance and how it can be used safely.

David is one seriously clever chap. He studied mathematics at the University of Alberta in Canada before working on the design of particle accelerator projects in the US, UK, France, and Canada

He then returned to studying mathematics, this time at Oxford University. His doctoral thesis explored the predictability of nonlinear systems, with applications to weather forecasting.

His new book, co-authored with Paul Wilmott, is The Money Formula.

This is a book which goes inside the engine room of the global economy to explore the little understood world of quantitative finance. Orrell and Wilmott show how the future of our economy rests on the backs of this all-but-impenetrable industry.

Written not from a post-crisis perspective - but from a preventative point of view - the book traces the development of financial derivatives from bonds to credit default swaps, and shows how mathematical formulas went beyond pricing to expand their use to the point where they dwarfed the real economy.

If you've read The Big Short or watched the movie, you'll enjoy this conversation.

One of my favourite authors, Nassim Nicholas Taleb, said of The Money Formula, “This book has humor, attitude, clarity, science and common sense; it pulls no punches and takes no prisoners.” 

Welcome to The Money Formula with David Orrell, in episode 201 of Informed Choice Radio.

Some questions I ask:

-Could you start by defining quantitative finance, or quant?

-At what point did quant become a dominant form of global finance and also take control of the financial system?

-Has quant played a big role in every recent financial crash?

-Are financial instruments a positive force in the world, or do you think that they're just a way for bankers to make money?

-Do you think we've now got a better understanding of some of the risks involved and how it can be used more safely in the future?

-If we put you in charge for the day, what steps would you want to take in order to prevent another global financial crisis?

-Why are economists and traditional economic models having such a hard time of it lately?

 

Thank you for listening!

To get new episodes of Informed Choice Radio sent directly to your device as soon as they are published, you can subscribe on Apple Podcasts or Stitcher

Your reviews on Apple Podcasts are incredibly helpful and really appreciated. We get notified about each one; please leave a note of your name and website URL so we can mention you in a future episode.