The Physics of Wall Street: a brief History of Predicting the Unpredictable

“According to the 2011 Forbes ranking . . .”: Forbes magazine (2011).
2
“According to MIT mathematician Isadore Singer . . .”: Singer made this remark 
in the introduction to Simons’s public lecture at MIt in 2010 (Simons 2010).
2
“Hedge funds are supposed to work . . .”: for more on the history of hedge 
funds, including their role in the 2008 crisis, see Mallaby (2010). for background on the 
workings of financial institutions more generally, see Mishkin and eakins (2009).
3 “They have been around for at least four thousand years . . .”: the details of the 
early history of derivatives contracts come from Swan (2000). the names used in the 
text are from real Mesopotamian tablets.
4 “But when markets opened . . .”: this history of the 2007 quant crisis, includ-
ing numbers cited below, comes from Patterson (2010), from news articles from Au-
Notes

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t h e p h y s i c s o f wa l l s t r e e t
gust/September 2007 (Patterson and raghavan 2007; Lahart 2007; nocera 2007; Ahrens 
2007), as well as from academic work on the topic (Gorton 2010; Khandani and Lo 2011).
5 “Isaac Newton despaired . . .”: While it is known that newton suffered some 
losses in the South Seas bubble, this quote is sometimes disputed. the attribution seems 
to originate with Spence (1820, p. 368).
5
“On average . . .”: these numbers come from Sourd (2008).
5
the Medallion returns are from Willoughby (2008). It is worth pointing out 
that renaissance’s other principal fund, the renaissance Institutional equities fund, 
which uses strategies similar to those of the other quant funds and which is designed to 
have a much higher capitalization than the Medallion fund, did suffer losses of about 1% 
in 2007 (Strasburg and Burton 2008).
6 “. . . promoted by Nassim Taleb . . .”: See taleb (2004, 2007a).
8 “Even the traditionalists suffered . . .”: numbers are from Berkshire Hathaway’s 
2010 annual report (Buffett 2010).
8
“Jim Simons’s Medallion Fund . . .”: the Medallion numbers are from Wil-
loughby (2009).
1. Primordial seeds
2 “Or so it would have seemed to Louis Bachelier . . .”: the story told in this open-
ing section takes some liberties, as certain details of Bachelier’s life are not well known. 
In particular, I am following the french historian of statistics Bernard Bru, who has ar-
gued that Bachelier almost certainly worked at the Bourse to support himself during his 
time at the University of Paris, which began in 1892, and during the years after his Phd 
when he lived in Paris without regular academic employment (taqqu 2001). However, 
as Bru admits, there is no concrete evidence of Bachelier’s employment at the Bourse. 
Whatever else is the case, it is clear that Bachelier had an unusual amount of experi-
ence with the french financial system when he wrote his dissertation in 1900. A second 
liberty concerns the idea that Bachelier would have comforted himself in approaching 
the Bourse by imagining it as a giant casino. other details provided here — Bachelier’s 
age, the year he arrived in Paris, his family situation — are all well documented. Bio-
graphical details provided here and elsewhere in the chapter come principally from the 
documents collected in courtault and Kabanov (2002), as well as dimand and Ben-el-
Mechaiekh (2006), Sullivan and Weithers (1991), Jovanovic (2000), davis and etheridge 
(2006), Mandelbrot (1982), Mandelbrot and Hudson (2004), MacKenzie (2006), and 
Patterson (2010).
2
“Inside, it was total bedlam”: the Bourse was a variety of open outcry system, 
and it seems that during the brief periods when the brokers would meet in the building 
for trades, the scene could become quite disordered. Modern open outcry exchanges 
are certainly “total bedlam.” for more on the history of the Bourse, including various 
pictures of how it functioned, see Walker (2001) and Lehmann (1991, 1997).
3 “Laid out in front of him . . .”: this would have been Bachelier’s dissertation 

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Notes 
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231
(Bachelier 1900), which is presented in both french and english in davis and etheridge 
(2006).
3