Global Alpha quant fund had lost 27 percent of its value this year because its computers failed to anticipate what the firm called "25 percent standar

For Wall Street's Math Brains, Miscalculations | Complex Formulas Used by 'Quant' Funds Didn't Add Up in Market Downturn | By Frank Ahrens | Washington Post Staff Writer | Tuesday, August 21, 2007; Page A01
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Short for "quantitative equity," a quant fund is a hedge fund that relies on complex and sophisticated mathematical algorithms to search for anomalies and non-obvious patterns in the markets. These glitches, often too small for the human eye, can present opportunities for short- and long-term trades that yield high-profit returns.
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But the 387-point drop in the Dow Jones industrial average Aug. 9 and the continuing turmoil in the markets, in part attributed to massive sell-offs by the quant funds, have tarnished some of the quants' glimmering intellectual credentials and shown that, when push comes to shove, they can rush toward the exits as fast as a novice investor.

Last week, Goldman Sachs said its Global Alpha quant fund had lost 27 percent of its value this year because its computers failed to anticipate what the firm called "25 percent standard deviation moves" or events so rare Goldman had seen them only twice before in the firm's history. On the same day Goldman revealed the bad news, the firm said it would lead a group of big-money investors, including philanthropist Eli Broad, in pouring $3.6 billion into another Goldman quant fund, aiming to shore up confidence in the quants. ...