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I find this stuff fascinating, and this article is way above average for online posts about proprietary/algorithmic/quantitative/low-latency trading (very leaky

I find this stuff fascinating, and this article is way above average for online posts about proprietary/algorithmic/quantitative/low-latency trading (very leaky Venn diagram there). I have a few nitpicks but overall it's informative and it's an interesting format: viewing an industry through the lens of a particular firm, especially one as fascinating as Jane. Anything that develops literacy in modern finance amongst the lay public is a good thing in my book. If this stuff floats your boat I'd also recommend any of Carl Cook's talks, e.g. https://www.youtube.com/watch?v=NH1Tta7purM https://www.youtube.com/watch?v=NH1Tta7purM. Optiver is AFAIK in a somewhat different business than Jane, but they're also players (or were last I had any inside baseball). Too many people got their worldview on this industry from "Flash Boys", and I say this as a Lewis fan, is criminally stupid at best and in bad faith at worst (if you want a well-researched, accessible alternative: https://www.amazon.com/Trading-Speed-Light-Algorithms-Transforming/dp/0691211388 https://www.amazon.com/Trading-Speed-Light-Algorithms-Transf... is about a zillion times better). It's a pretty short list of places I'd ever go through some grueling and semi-arbitrary gauntlet to work for, but Jane is on it for sure. I hope the author(s) do Medallion next.

melony 4y ago
Since this is Hacker News, let's not beat about the bush. Here's a channel that actually go through derivatives pricing without hiding the math: https://youtube.com/c/QuantPy/videos https://youtube.com/c/QuantPy/videos
- benreesman 4y ago
  Thank you kindly for what looks like a great resource! I've been trying to put myself through YouTube night school on some of this stuff, and MIT OCW has great resources as well at significantly less cost than going to MIT ;) This is a pretty reasonable jumping off point for their corpus of financial engineering stuff: https://www.youtube.com/watch?v=HdHlfiOAJyE https://www.youtube.com/watch?v=HdHlfiOAJyE. I'm fortunate enough to work with a person who actually understands derivatives trades with some sophistication, but that's a happy accident and the more people have access to good online resources the better! Edit: I forgot to mention this book (https://www.amazon.com/Algorithmic-Trading-DMA-introduction-strategies/dp/0956399207 https://www.amazon.com/Algorithmic-Trading-DMA-introduction-...) in the spirit of something more technical than the general-audience one I linked above. I have some nitpicks with it as well, but I've gotten value out of it.
- thornewolf 4y ago
  Followed quantpy tutorials to implement my own black scholes and heston pricing models last year. Highly recommend.
- lordnacho 4y ago
  Whenever the topic comes up, I throw out a reference to Hull's Futures, Options and other derivatives, Wilmott's Quantitative Finance, and possibly also Taleb's Dynamic Hedging. That's more than enough on the instrument math side, most of what you'll see is pretty mundane stuff, unless you end up on an exotics structuring desk. I'd also note that JS and other MMs mostly don't do anything requiring you to know the intimate details of these things, a lot of it is understanding how the market works rather than the deep instrument math. That might mean other kinds of math of course.
  - topologie 4y ago
    This. Exactly this.
  - blitzar 4y ago
    Hull's Futures, Options and other derivatives was on the bookshelf of a friend who worked at JS - it was their bible. I always throught market microstructure was more important, but they insisted a disciplined application of the maths (as per the bible of Hull) was where the magic really was.
    - adament 4y ago
      If you come from a pure math theory first background I would advise starting out with Björks “Arbitrage theory in continuous time”, I personally found the lack of rigor and superfluous examples in Hull frustrating and found Björk much more approachable then you can look into Hull for real life practicalities like daycount conventions, etc. If you want to go into complex derivatives pricing I would advise looking at the Andersen and Piterbarg trilogy.
      - pvitz 4y ago
        I would also suggest to forget about Hull and Wilmott and would suggest to start with the excellent book by Shreve: "Stochastic Calculus for Finance. Volume II: Continuous Time Models". Then, you can quickly read Bjoerk, work through Brigo/Mercurio (if you like that style) or Andersen/Piterbarg. Alternatively, if you want to fully dive into into the subject after Shreve, Musiela/Rutkowski: "Martingale Methods in Financial Modelling" is wonderful.
paulpauper 4y ago
I hope the author(s) do Medallion next. Medallion has probably gotten more scrutiny than any other fund, yet 3 decades later it's still as opaque as ever beyond vague 'statistical methods'. It makes a lot of money no matter what. It's more tight-lipped and exclusive than Jane Street. I don't even think anyone knows even if it's doing market making or not. Or if it's making short-term directional bets. You would think after 30 years stuff would leak and the edge would be gone. Employees are paid enough to not disclose, and likely are divulged only a small part of the overall method/system, so only a handful of employees will know how it works in its entirety. What it's doing has to be on a very large scale and in a big and liquid market to be so consistent and profitable.
- benreesman 4y ago
  Oh yeah, RenTech is just fascinating, and the opacity only lends to the mystique around it. People are talking a lot about how hard it is to get a gig at Jane, and AFAIK it's fucking hard, but one of the best mathematicians who was also a super-hacker I've ever met crushed the Jane interview and got bounced out in the RenTech screen. Of course, the 30%+ annual returns almost every year for 30 years doesn't hurt the mystique either ;) It's interesting that their other funds are far more mundane in terms of performance and last I heard Medallion can't hold much capital (~10B or so I've heard in whispers), but there is definitely something interesting as hell going on there. Near as I can tell it's the hardest job to get on Earth. Rumor mill is that they pre-screen candidate based on their citation record in the literature, though that's obviously hearsay and I don't know if it's true.
  - Inconel 4y ago
    In addition to RenTech, TGS is another intriguing place that mostly flies under the radar and from all rumors seems to have been fantastically successful over 3 decades. It’d be very interesting to hear about other less known firms with stellar, albeit likely smaller in absolute terms, levels of success.
    - VirusNewbie 4y ago
data_maan 4y ago
I find the article to be a poorly written piece of propaganda for Jane Street as you could change "Jane Street" for "Citadel" for example and entire paragraphs would still be true. > it's an interesting format: viewing an industry through the lens of a particular firm What's interesting about that? Almost every other article does that.
ivanech 4y ago
+1 to Trading at the Speed of Light. A great read, particularly for any engineer curious about clinging to the limits of physics. An example: microwave towers are used to beam data from Chicago to New York because it's faster than fiber optic cables. Even crazier: these microwave towers have their repeater hardware at the top of the tower (microwave towers usually have it at the bottom) so that they don't lose time in wires going from the top to the bottom.
- Bluecobra 4y ago
  Even microwave is slow, they are using shortwave radio for certain signals. Maybe neutrinos are next? https://sniperinmahwah.wordpress.com/2018/05/07/shortwave-trading-part-i-the-west-chicago-tower-mystery/ https://sniperinmahwah.wordpress.com/2018/05/07/shortwave-tr...
  - samatman 4y ago
    I'm not sure what's going on with this comment so let me make three observations: The speed (latency) of the EM spectrum is the effective celerity of the medium: this doesn't differ in the air between microwave and shortwave in any meaningful way. The speed (throughput) achievable on a given frequency is limited by the period of that frequence, high wavelengths can modulate more signal. Microwaves are higher frequency than radio by definition, so they have a higher throughput. Neutrinos don't exceed the speed of light, and make a very bad medium of transmission given the near-complete lack of interaction with baryonic matter.
    - dejerpha 4y ago
      Neutrinos don’t need to go around the earth, so in theory you have a pi/2 advantage over an EM signal when sending to an antipodal location, for instance. In practice of course, throughput is utterly horrible for the reason you indicate.
      - Scoundreller 4y ago
        All you need is a couple bits, but yeah, making sure it’s the neutrino your buddy sent and not some other one is where it gets complicated.
murbard2 4y ago
Having worked as a quant GS on HFT, +1 on Flash Boys being criminally stupid at best and bad faith at worst.
JackFr 4y ago
Michael Lewis is a great writer, but the closer you are to the subject the more his shortcomings are exposed. I felt the same way about The Big Short and to some extent Liar’s Poker. He has an annoying tendency to assume that if he doesn’t understand something, either it’s completely inscrutable to everyone or simply BS. (And to pile on, The Blind Side was the touching story of how Lewis’s prep school classmate, an Ole Miss booster, gamed the system to provide improper benefits to a high school recruit.)
- gadders 4y ago
  Liar's Poker was autobiographical, though. He should have got that right :-)
- FabHK 4y ago
  While I agree that Flash Boys was below par, what's wrong with The Big Short? I thought that was well done, accessible, and largely accurate.
  - JackFr 4y ago
    I think it's probably because I was there for it. His construction of the narrative, while better than many (including many straight journalists) ends up sort of falsely casting people into hero/fool/villain roles that make the book work as an entertainment, but don't fully hold up. It's a decent book, and a decent movie (kudos for one particular scene where I recognized data from the actual LoanPerformance database) I actually prefer the movie Margin Call for more accurately capturing the feel of the crisis from inside a bank.
    - adamsmith143 4y ago
      But wasn't the point of the Big Short to show the perspective of people "outside" the mainstream who made big bets against the system/banks? Not surprising then that it didn't really show what was happening in the banks themselves.
      - 4y ago
the_watcher 4y ago
The Diff is easily one of the best value’s I get despite being >$200/year. I’m not sure how I’d rank it relative to Stratechery, I personally enjoy The Diff more but Stratechery is more relevant to my work and is also excellent. Byrne churns out an all-timer like this every other month or so, and his average posts still consistently include the best sentences I read of the day. It’s one of the only newsletters that, if I get behind on reading it, I make sure I catch up on every missed issue.
gonehome 4y ago
The author is Byrne Hobart: https://twitter.com/ByrneHobart https://twitter.com/ByrneHobart and his substack The Diff is just generally great.
bmitc 4y ago
> It's a pretty short list of places I'd ever go through some grueling and semi-arbitrary gauntlet to work for, but Jane is on it for sure. It certainly seems like an interesting place to work, but I find their hiring process as a bit of a red flag. Places that hire like that confuse me, because it seems it's going to apply a very selective filter to applicants that make it through. And I don't meant selective in the sense of technical ability but more emotional, social, and thinking styles. I get incredibly nervous in technical interviews and with a wide background, I don't always know certain bits of computer science. So, I do terrible in these style of interviews, because they do nothing to expose what I do know or how I really think on projects. As another point of why I don't think they work, they almost are never two-way. And if they were, it would show the pointlessness of them. If I asked interviewers a bunch of questions about things that I know about, then we'd just be trading blows, which is pointless.
- dQw4w9WgXcQ 4y ago
  > I find their hiring process as a bit of a red flag This is a bit like saying you find the hiring process at the NFL or for SEAL teams a red flag. You either fall through the selection sieve or you don't, that's the whole point. The filter has served its purpose, and they end up with the elite high-performing teams they desire. There's nothing wrong with you or the filter if you don't make it. The filter clearly does work because Jane St prints cash like the Fed and is one of the top MM firms out there.
  - bmitc 4y ago
    I understand the perspective, although it's different and not really comparable to those other things you mentioned, especially since the NFL and the SEAL teams do not evaluate people solely based upon a few hours of tunnel-visioned interviews. They are primarily evaluated on their performance in real-life scenarios and training across a decent amount of time. Of course Jane Street is successful! There's no question there. However, I don't think it's much of a question that they probably miss out on some great candidates that don't fit into that type of hiring process. It's possible they view those as acceptable losses.

melony 4y ago

Since this is Hacker News, let's not beat about the bush. Here's a channel that actually go through derivatives pricing without hiding the math: https://youtube.com/c/QuantPy/videos https://youtube.com/c/QuantPy/videos

benreesman 4y ago
Thank you kindly for what looks like a great resource! I've been trying to put myself through YouTube night school on some of this stuff, and MIT OCW has great resources as well at significantly less cost than going to MIT ;) This is a pretty reasonable jumping off point for their corpus of financial engineering stuff: https://www.youtube.com/watch?v=HdHlfiOAJyE https://www.youtube.com/watch?v=HdHlfiOAJyE. I'm fortunate enough to work with a person who actually understands derivatives trades with some sophistication, but that's a happy accident and the more people have access to good online resources the better! Edit: I forgot to mention this book (https://www.amazon.com/Algorithmic-Trading-DMA-introduction-strategies/dp/0956399207 https://www.amazon.com/Algorithmic-Trading-DMA-introduction-...) in the spirit of something more technical than the general-audience one I linked above. I have some nitpicks with it as well, but I've gotten value out of it.
thornewolf 4y ago
Followed quantpy tutorials to implement my own black scholes and heston pricing models last year. Highly recommend.
lordnacho 4y ago
Whenever the topic comes up, I throw out a reference to Hull's Futures, Options and other derivatives, Wilmott's Quantitative Finance, and possibly also Taleb's Dynamic Hedging. That's more than enough on the instrument math side, most of what you'll see is pretty mundane stuff, unless you end up on an exotics structuring desk. I'd also note that JS and other MMs mostly don't do anything requiring you to know the intimate details of these things, a lot of it is understanding how the market works rather than the deep instrument math. That might mean other kinds of math of course.
- topologie 4y ago
  This. Exactly this.
- blitzar 4y ago
  Hull's Futures, Options and other derivatives was on the bookshelf of a friend who worked at JS - it was their bible. I always throught market microstructure was more important, but they insisted a disciplined application of the maths (as per the bible of Hull) was where the magic really was.
  - adament 4y ago
    If you come from a pure math theory first background I would advise starting out with Björks “Arbitrage theory in continuous time”, I personally found the lack of rigor and superfluous examples in Hull frustrating and found Björk much more approachable then you can look into Hull for real life practicalities like daycount conventions, etc. If you want to go into complex derivatives pricing I would advise looking at the Andersen and Piterbarg trilogy.
    - pvitz 4y ago
      I would also suggest to forget about Hull and Wilmott and would suggest to start with the excellent book by Shreve: "Stochastic Calculus for Finance. Volume II: Continuous Time Models". Then, you can quickly read Bjoerk, work through Brigo/Mercurio (if you like that style) or Andersen/Piterbarg. Alternatively, if you want to fully dive into into the subject after Shreve, Musiela/Rutkowski: "Martingale Methods in Financial Modelling" is wonderful.

paulpauper 4y ago

I hope the author(s) do Medallion next. Medallion has probably gotten more scrutiny than any other fund, yet 3 decades later it's still as opaque as ever beyond vague 'statistical methods'. It makes a lot of money no matter what. It's more tight-lipped and exclusive than Jane Street. I don't even think anyone knows even if it's doing market making or not. Or if it's making short-term directional bets. You would think after 30 years stuff would leak and the edge would be gone. Employees are paid enough to not disclose, and likely are divulged only a small part of the overall method/system, so only a handful of employees will know how it works in its entirety. What it's doing has to be on a very large scale and in a big and liquid market to be so consistent and profitable.

benreesman 4y ago
Oh yeah, RenTech is just fascinating, and the opacity only lends to the mystique around it. People are talking a lot about how hard it is to get a gig at Jane, and AFAIK it's fucking hard, but one of the best mathematicians who was also a super-hacker I've ever met crushed the Jane interview and got bounced out in the RenTech screen. Of course, the 30%+ annual returns almost every year for 30 years doesn't hurt the mystique either ;) It's interesting that their other funds are far more mundane in terms of performance and last I heard Medallion can't hold much capital (~10B or so I've heard in whispers), but there is definitely something interesting as hell going on there. Near as I can tell it's the hardest job to get on Earth. Rumor mill is that they pre-screen candidate based on their citation record in the literature, though that's obviously hearsay and I don't know if it's true.
- Inconel 4y ago
  In addition to RenTech, TGS is another intriguing place that mostly flies under the radar and from all rumors seems to have been fantastically successful over 3 decades. It’d be very interesting to hear about other less known firms with stellar, albeit likely smaller in absolute terms, levels of success.
  - VirusNewbie 4y ago

data_maan 4y ago

I find the article to be a poorly written piece of propaganda for Jane Street as you could change "Jane Street" for "Citadel" for example and entire paragraphs would still be true. > it's an interesting format: viewing an industry through the lens of a particular firm What's interesting about that? Almost every other article does that.

ivanech 4y ago

+1 to Trading at the Speed of Light. A great read, particularly for any engineer curious about clinging to the limits of physics. An example: microwave towers are used to beam data from Chicago to New York because it's faster than fiber optic cables. Even crazier: these microwave towers have their repeater hardware at the top of the tower (microwave towers usually have it at the bottom) so that they don't lose time in wires going from the top to the bottom.

Bluecobra 4y ago
Even microwave is slow, they are using shortwave radio for certain signals. Maybe neutrinos are next? https://sniperinmahwah.wordpress.com/2018/05/07/shortwave-trading-part-i-the-west-chicago-tower-mystery/ https://sniperinmahwah.wordpress.com/2018/05/07/shortwave-tr...
- samatman 4y ago
  I'm not sure what's going on with this comment so let me make three observations: The speed (latency) of the EM spectrum is the effective celerity of the medium: this doesn't differ in the air between microwave and shortwave in any meaningful way. The speed (throughput) achievable on a given frequency is limited by the period of that frequence, high wavelengths can modulate more signal. Microwaves are higher frequency than radio by definition, so they have a higher throughput. Neutrinos don't exceed the speed of light, and make a very bad medium of transmission given the near-complete lack of interaction with baryonic matter.
  - dejerpha 4y ago
    Neutrinos don’t need to go around the earth, so in theory you have a pi/2 advantage over an EM signal when sending to an antipodal location, for instance. In practice of course, throughput is utterly horrible for the reason you indicate.
    - Scoundreller 4y ago
      All you need is a couple bits, but yeah, making sure it’s the neutrino your buddy sent and not some other one is where it gets complicated.

murbard2 4y ago

Having worked as a quant GS on HFT, +1 on Flash Boys being criminally stupid at best and bad faith at worst.

JackFr 4y ago

Michael Lewis is a great writer, but the closer you are to the subject the more his shortcomings are exposed. I felt the same way about The Big Short and to some extent Liar’s Poker. He has an annoying tendency to assume that if he doesn’t understand something, either it’s completely inscrutable to everyone or simply BS. (And to pile on, The Blind Side was the touching story of how Lewis’s prep school classmate, an Ole Miss booster, gamed the system to provide improper benefits to a high school recruit.)

gadders 4y ago
Liar's Poker was autobiographical, though. He should have got that right :-)
FabHK 4y ago
While I agree that Flash Boys was below par, what's wrong with The Big Short? I thought that was well done, accessible, and largely accurate.
- JackFr 4y ago
  I think it's probably because I was there for it. His construction of the narrative, while better than many (including many straight journalists) ends up sort of falsely casting people into hero/fool/villain roles that make the book work as an entertainment, but don't fully hold up. It's a decent book, and a decent movie (kudos for one particular scene where I recognized data from the actual LoanPerformance database) I actually prefer the movie Margin Call for more accurately capturing the feel of the crisis from inside a bank.
  - adamsmith143 4y ago
    But wasn't the point of the Big Short to show the perspective of people "outside" the mainstream who made big bets against the system/banks? Not surprising then that it didn't really show what was happening in the banks themselves.
    - 4y ago

the_watcher 4y ago

The Diff is easily one of the best value’s I get despite being >$200/year. I’m not sure how I’d rank it relative to Stratechery, I personally enjoy The Diff more but Stratechery is more relevant to my work and is also excellent. Byrne churns out an all-timer like this every other month or so, and his average posts still consistently include the best sentences I read of the day. It’s one of the only newsletters that, if I get behind on reading it, I make sure I catch up on every missed issue.

gonehome 4y ago

The author is Byrne Hobart: https://twitter.com/ByrneHobart https://twitter.com/ByrneHobart and his substack The Diff is just generally great.

bmitc 4y ago

> It's a pretty short list of places I'd ever go through some grueling and semi-arbitrary gauntlet to work for, but Jane is on it for sure. It certainly seems like an interesting place to work, but I find their hiring process as a bit of a red flag. Places that hire like that confuse me, because it seems it's going to apply a very selective filter to applicants that make it through. And I don't meant selective in the sense of technical ability but more emotional, social, and thinking styles. I get incredibly nervous in technical interviews and with a wide background, I don't always know certain bits of computer science. So, I do terrible in these style of interviews, because they do nothing to expose what I do know or how I really think on projects. As another point of why I don't think they work, they almost are never two-way. And if they were, it would show the pointlessness of them. If I asked interviewers a bunch of questions about things that I know about, then we'd just be trading blows, which is pointless.

dQw4w9WgXcQ 4y ago
> I find their hiring process as a bit of a red flag This is a bit like saying you find the hiring process at the NFL or for SEAL teams a red flag. You either fall through the selection sieve or you don't, that's the whole point. The filter has served its purpose, and they end up with the elite high-performing teams they desire. There's nothing wrong with you or the filter if you don't make it. The filter clearly does work because Jane St prints cash like the Fed and is one of the top MM firms out there.
- bmitc 4y ago
  I understand the perspective, although it's different and not really comparable to those other things you mentioned, especially since the NFL and the SEAL teams do not evaluate people solely based upon a few hours of tunnel-visioned interviews. They are primarily evaluated on their performance in real-life scenarios and training across a decent amount of time. Of course Jane Street is successful! There's no question there. However, I don't think it's much of a question that they probably miss out on some great candidates that don't fit into that type of hiring process. It's possible they view those as acceptable losses.