From Ft Alphaville:
From the bank on Tuesday…*In August 2007 the market and in particular the funds suffered what came to be called the "Quant Quake".
NEW YORK, September 18, 2012 — The Goldman Sachs Group, Inc. (NYSE: GS) today announced that Harvey M. Schwartz, the global co-head of the Securities Division, will become Chief Financial Officer at the end of January 2013....MORE
As the Financial Times reported on Aug. 13, Mr. Viniar said one of the dumbest things of his life:
In March 2009 we posted "David Viniar, CFO of Goldman Sachs Blows Smoke at Journalists on AIG" which had this bit regarding the 25 Sigma comment:“We were seeing things that were 25-standard deviation moves, several days in a row”
Several folks, when they finally quit laughing, pointed out how blatently Mr. V was spinning.I was so tickled by that little paper that we posted on it a second time, the day MIT added it to their Physics arXive:
Most however underestimated how infrequent 25SD events are, the most common guess being once in 100,000 years. Tee hee.
In a snappy little eight page paper "How Unlucky is 25 Sigma" we see that at 7 Sigma the odds are:
...The reader will note that as k gets bigger the probabilities of a k-sigma event fallThe authors go on to describe the problems involved in computing numbers on the cosmological scales required for 25 standard deviations. A good read, both for the statistically challenged and for pros like Viniar, a very highly paid PR guy, in addition to his CFO duties.
• a 3-sigma event is to be expected about every 741 days or about 1 trading day
in every three years;
• a 4-sigma event is to be expected about every 31,560 days or about 1 trading
day in 126 years (!);
• a 5-sigma event is to be expected every 3,483,046 days or about 1 day every
• a 6-sigma event is to be expected every 1,009,976,678 days or about 1 day
every 4,039,906 years;
• a 7-sigma event is to be expected every 7.76e+11 days – the number of zero
digits is so large that Excel now reports the number of days using scientific
notation, and this number is to be interpreted as 7.76 days with decimal point
pushed back 11 places. This frequency corresponds to 1 day in 3,105,395,365
When Goldman Sachs was Really, Really Unlucky (GS)
And a third time in 2011:
"How Unlucky is 25-Sigma?" (and a huge apology) GS; C; BST; UBS; MER
We have more on Mr. V. but I'll always think of him as frozen in 2007.