What Quant Finance Research Could Learn From "PureTech"

Why I joined PureTech wrote Joi Ito, director of the Media Lab at MIT, recently.

It's about the intersection of science and commercialization. A way to resolve the entrepreneurship paradox.
PureTech, Giving Life to Science, is a science and technology development and commercialization company tackling tomorrow's biggest healthcare problems
Their purpose is
radical innovation in health
and PureTech
has a thematic, problem-driven approach to starting companies, proposing non-obvious solutions rooted in academic research and developing them together with a brilliant group of cross-disciplinary experts
In short, PureTech focuses on taking science and engineering, primarily in the healthcare area, and developing innovative products and companies. Yet another incubator? No, much more…


In my factory automation time (25 years ago) I dreamed of establishing a "walk in center" for complicated discrete manufacturing problems. With industrial scale flexible manufacturing islands, and labs…with researchers from distinguished academic institutions and industry and practitioners from manufacturers...finding new operation plans, creating new tools, set ups...and running concrete experiments on the most complicated parts.

It never materialized, because I failed to convince the authorities to make it happen (manufacturers and manufacturing system providers were enthusiastic)…but the idea was a kind of "PureProd".


MathConsult, Andreas Binder CEO, is a spin off company of the Industrial Mathematics Institute of the Johannes Kepler University of Linz. They also partner with the Radon Institute for Computational and Applied Mathematics (RICAM) of the Autrian Academy of Sciences. 100+ mathematicians and physicists work in this IndMath center in Linz - with 25 at MathConsult.

MathConsult transforms their core competencies - Numerical Simulation and Inverse Problems - into complex systems and products for concrete industrial partners in the areas of Metallurgy/Chemical Engineering, Multi-physics problems, plastic deformation, dynamical multi body systems, Adaptive Optics

Their key technologies embraces hundreds of cross-sectoral mathematics software programs and there is translational research going on within MathConsult to create new systems for their partners. 


Those libraries were the key to add a new competency: Computational Finance. Some of the approaches are presented here. 

We built UnRisk and created the UnRisk consortium for technology development and commercialization. UnRisk concentrates on derivative and risk analytics and we've decided to unleash our technologies and provide the corresponding know how packages. 

What we haven't done: intensive fund raising (one of the PureTech strengths). But we offer options, like project-for-product cost arrangements…

However, we think, we are a new kind of quant finance company. But this is "in the small".

In the large, quant finance lacks radical innovation. Consequently, regulators decided to force a kind of bureaucratic regime by standardization and centralization. Nothing to become mad about…what should they do instead?

Quantifying behavioral risk?

There's the big discussion about state risk and behavioral risk. Fama got the nobel prize for showing that there's only state risk (EMH) and Shiller for emphasizing on behavioral risk.

But behavioral risk will never be a topic that goes beyond intellectual discussions at market risk cocktail parties, if it doesn't become computational.

And this is really hard work. A mathematical Hercules task. It can't be done by single groups alone. It needs collaboration and antidisciplinary

The mathematics may be influences by game theory, evolution theory…and probably the approach of cellular automata…but also "pure mathematics" will play an important role in the sense that its models may speak out a behavior (not only a state transition…). 

Don't do it alone - cooperate. cooperate. cooperate.

But, this will only happen when the financial circles recognize that strict competition is an innovation killer. If we do not cooperate more, financal markets will be increasingly conducted by regulation and run into the next crisis based on regulatory arbitrage...

PureTech is a great company.

p.s. as Andreas posted yesterday we've received a research grant for doing the counter party risk valuation "the UnRisk way".  If you want to partner, we will be happy to...