Before option-pricing theory, securities pricing was an art. Yes, there were capital asset pricing theories for fundamental analysts. But at banks, a phone and hustle were the tools of the trade.
With Black-Scholes (and put-call parity) came the ability to (a) manufacture options out of other securities and (b) print objectively-wrong quotes. The former gave banks an incentive to build the business. The latter gave them the incentive to automate. The people they hired to do that were quants.
The first generations of quants automated option-pricing models. Through the 80s, they found themselves involved in more products, e.g. securitised loans and mortgages. By the 90s, they were launching funds. Today, almost everyone on a modern trading desk is a quant to some degree.
I thought now with securities with negative interest there were a lot of securities that now had to take that into account and black-scholes is just no help whatsoever there.
> with negative interest there were a lot of securities that now had to take that into account and black-scholes is just no help whatsoever there
Not really. Black-Scholes (and its variants) tend to assume log-normal rates distributions. But that’s just a default, and one chosen with the explicit assumption of positive rates.
Most practitioners have had custom curves for decades; using one that pierces zero is a trivial modification.
The term is historical, not functional.
Before option-pricing theory, securities pricing was an art. Yes, there were capital asset pricing theories for fundamental analysts. But at banks, a phone and hustle were the tools of the trade.
With Black-Scholes (and put-call parity) came the ability to (a) manufacture options out of other securities and (b) print objectively-wrong quotes. The former gave banks an incentive to build the business. The latter gave them the incentive to automate. The people they hired to do that were quants.
The first generations of quants automated option-pricing models. Through the 80s, they found themselves involved in more products, e.g. securitised loans and mortgages. By the 90s, they were launching funds. Today, almost everyone on a modern trading desk is a quant to some degree.