Profile
Finding sense in finance
Dietmar Maringer, professor of computational management sciences, University of Basel
After losing a fortune in the South Sea ‘Dietmar has a feeling for the practical
Company bubble of 1720, Sir Isaac Newton aspects of a problem, but he is not arrogant
said: ‘I can calculate the motion of heavenly in telling people that he knows how to do
bodies, but not the madness of people.’ something, what he is providing is a tool, you
As the world sits on the edge of a financial also need input from the practitioner. You
precipice it may be a good time to reflect need both components to be successful.’
on the fact that little fundamental research Maringer was born in a small town near
has been done on how financial markets Vienna, Austria. Both his parents were in
work. Clearly there are non-linearities and business, but his interest in his early years lay
very large numbers of variables, but logic in sport, maths and science. He studied at the
would suggest that such situations are better University of Vienna and the University of
handled with the help of powerful computers Technology of Vienna in a combination of
than simply the ‘gut instincts’ of traders. economics, computer science and business
The field of computational finance is administration, which was styled ‘business
well established and has contributed to the information systems’. He was not sure what
development of – as well as the understanding he wanted to do, but started to develop an
of – banking and money. But what is less well interest in economics at university. Comput-
understood is the basic operation of markets. ers were not used much in economics at the
People buy things because other people are time, but Maringer had studied operational
buying it or vice versa, creating huge swings research, database management and some
in value that have no basis in underlying asset artificial intelligence, and became interested
strength. Looking back at various significant free to model what you think is adequate and in combining the two.
events in the financial markets over the years pertinent rather than the other way around, He says: ‘I realised that computing was not
indicates that there are some fundamental where you have to stick to a framework or just about the computers themselves. There
laws describing the markets, analogous to the else you cannot optimise it. This is the new were also benefits that could be applied in
laws of physics – it’s just that nobody knows approach. In many cases the problem in economics and finance. Initially I worked in
what they are. finance is not to find the absolute optimum; option pricing and some more mathematics
Dietmar Maringer, professor of computa- you are looking for a good solution. You areas. Eventually I moved on to econometrics,
tional management sciences at the Universi- always have a lot of noise in the data, so an where my research was on estimating risk that
ty of Basel, is devising complex models of the absolute optimisation makes no sense. This had a data mining element to it. It seemed to
markets and using heuristics to derive some approach allows you to model extremely me a very good idea to get to the computers
kind of structure as to how the markets work. large problems without the models becoming to do the number crunching.’
You would think, given the current situation too complex. He graduated in 1993 and his skills with
in the world of finance, that the major banks ‘People will realise that these methods are computers secured him a job at the University
would be beating a path to his door. But as useful, maybe more quickly given the current of Vienna’s Finance Department while he
yet, this area of fundamental research is only situation, and maybe they will realise that you continued his studies. He was offered the
beginning to make its mark. need a computer in order to do something chance to go to Cambridge University in
Manfred Gilli, professor of econometrics properly. People will always need to make 1996 to do a masters degree in finance. The
at the University of Geneva, says: ‘Dietmar the final decision, but the computer can Cambridge economics department was very
is a real leader in the field of heuristic provide something on which they can rely. mathematical in those days and Maringer
optimisation as applied to finance problems. The emotional component of investment started to look at more advanced mathematical
It is a new field and more interest will come. decisions is very important. techniques and how they could be applied to
It is not always easy to convince an industry ‘Dietmar has become a full professor at economics and finance. It was the beginning of
about the trend; they tend to stick to what Basel at a very young age, which shows how using advanced mathematics in option pricing,
they have learned. successful he has been. I think he will realise and a lot of people were being recruited into
‘The particular point about these methods big things and I fully support him. He is a banking from a physics or applied mathematics
is that you do not have to build a model that bright guy and a very hard worker. He is an background. ‘Of course in those days we
fits your classical optimisation tools; you can excellent presenter at conferences and really worked on the assumption that everything was
optimise whatever you want. It leaves you captures the audience. normally distributed and we have seen in the
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SCieNTifiC CoMPUTiNG WorlD february/march 2009 www.scientific-computing.com
SCWfeb09 pp08-11 Profile.indd 8 4/2/09 10:41:09
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