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Current stock prices race across a display at the front of the room in a smooth stream of glowing green letters. Hunched in the glow of their computer screens, two dozen men and women pore intently over the data before them, filling the air with the steady rattle of fingers on keyboards. Red and blue lights flicker on high-tech telephones at each station as the traders speak in hurried tones into their handsets. Some pause pensively as breaking news from Europe flashes onto a wall-mounted electronic panel nearby.
Another day on Wall Street? Not exactly. It's another day at the MIT Sloan School of Management.
Sloan has just completed the first fully equipped state-of-the-art trading room ever built on a university campus. Identical in every detail to the best trading rooms in financial capitals around the world, this unique facility will not only give Sloan students first-hand experience in the world of high finance; it will also serve as a powerful platform for carrying on the school's tradition of pioneering research in finance and financial engineering.
"Our overall goal at Sloan is to spur innovation by bringing together the very best of theory and practice," said Glen L. Urban, professor of management and dean of the Sloan School. "This new facility is not only a realistic proving ground where we can work closely with industry to develop and test the new financial techniques and technologies emerging from our research, it is also a classroom for teaching the people who will implement those new tools in practice."
Designed by Dyer-Brown & Associates, architects who have designed similar facilities for financial firms from Boston to London, Sloan's trading room features live (delayed by 15 minutes) tick-by-tick price/volume data from Reuters on all 300,000 financial instruments worldwide, Trans-Lux Data Walls for displaying market information, the Teknekron trading platform, and an IPC Tradenet telephone network. Twenty-three PentiumR-powered Acer PCs are arrayed on Woodtronics trading desks, allowing students and faculty to analyze data, test trading strategies and link to other MIT on-line resources. A special teaching station will connect the instructor's computer to an overhead projector.
Faculty and students will use the 3,000-square-foot facility both for classroom study and homework problems in a range of subjects on investments, financial market analysis, options pricing and information technology in financial services. Plans also call for using the facility to support a variety of continuing education programs.
At the same time, the trading room will be a major research facility.
"Sloan's research has played a central role in shaping the practice of finance, often by drawing on the approaches and insights of other fields," said Paul Asquith, professor of finance and senior associate dean. For example, the late Fischer Black, an applied mathematician by training, joined with colleagues Myron Scholes and Robert Merton at Sloan in the early 1970s to develop a technique for putting an accurate price on financial options. The now-famous Black-Scholes formula not only emerged as a cornerstone for the new field of financial engineering, it also triggered the explosive growth of today's options trading business, currently estimated to be $20 trillion worldwide.
"With its well-known expertise in computer science, artificial intelligence, operations research and mathematics, MIT is fertile ground for continuing innovation in finance," said Andrew Lo, Harris & Harris Group Professor of Finance. "The trading room is an ideal place for us to collaborate with experts from all over campus, as well as from industry, to lay the groundwork for the next generation of sophisticated financial tools."
Potential avenues of exploration, some of which are already under way, include:
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ Novel techniques for representing complex portfolio performance visually using advanced computer graphics.
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ Improved methods for analyzing and evaluating risk.
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ Investigations of how psychology influences trading decisions.
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ Advanced algorithms for optimizing complex portfolio strategies.
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ Computational techniques based on neural network theory that can "learn" from past market experience.
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½Studies of the tick-to-tick behavior of prices, and its significance to trading strategies.
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½New vehicles for investment.
"Our new facility provides the best possible environment for us to pursue these avenues," Professor Asquith explained. "Understanding market behavior without a trading room is like trying to study nuclear physics without an accelerator, or cell biology without a microscope-you've got to have the right tools for the job."
A version of this article appeared in MIT Tech Talk on January 31, 1996.