Today I have attended a talk titled - “Interest Rate Models, past present and future”. This is the first ever presentation that I have seen till date that had only equations from Slide 1 till the end. What all I have known about stochastics seemed absolutely nothing , i mean nothing, as compared to  what was being done in the real world.The complexity of pricing and calibration is mind boggling.  The speaker ripped apart all the possible interest rate models till date and I was clueless to understand most of his arguments. BTW, the speaker was Jesper Andreasen ( Head of Fixed Income Research Group at Bank of America) . The speaker was awarded “quant of year” by Risk Magazine recently.

Who says math can’t make money ? Every option/ financial product that was discussed created tons of money for the banks where Mr.Jesper consulted/worked. By the end of the talk, I was completely overwhelmed by the math that was being used to price interest rate derivatives. Its all about brownian motion. I guess one needs to sleep with Brownian motion for months , possibly years so as to come up with profitable derivative products. Or one needs to be street smart i guess..or may be a combination of both…!!