Revenge of the Nerd

The CQF is taught at night in London's financial district by Wilmott and a handful of his buddies, most of whom have worked in finance. These instructors are miles away from the stereotypical math or finance professors. Among them is Espen Haug, a Norwegian former JPMorgan options trader who looks like a cross between James Bond and Arnold Schwarzenegger, and often lectures in sunglasses and a tuxedo. One evening this spring, Wilmott is wrapping up the final class on interest rates and fixed income. He stands at a podium, looking out at about 30 students, most of whom have just gotten off work from their jobs at banks: Citigroup, Deutsche Bank, Credit Suisse. Another 100 or so watch the lecture streaming over the Internet. The official topic of the evening is how to decompose the random movements of the forward rate curve into its principal components—i.e., how to predict random fluctuations in interest rates in order to determine bond prices. "There's nothing difficult here," Wilmott says without irony. "If you can keep your head, you'll be fine."

He's just scribbled a handful of equations on a whiteboard, including one called the Heath-Jarrow-Morton model. Developed in the late 1980s, the formula looks horrifically complicated to the layman. But to a mathematician it's elegant, simple—and dangerous. Behind its simplicity lie hidden mistakes, unobservable variables like volatility and correlation that can provide a false sense of security. "With models, you want to see where things go wrong," says Wilmott. "You want to see the dirt. But HJM is actually just a big rug for [mistakes] to be swept under." For the next half hour, Wilmott deconstructs the thing, cautioning students on overreliance. "In the end, we should all like models that wear their faults on their sleeves," he tells the class.

Two hours later, Wilmott is treating his students to beers at a nearby pub. Among them are half a dozen fresh-faced Citigroup employees, all in their mid-20s, all recent physics or engineering Ph.D. graduates, and all being sponsored by Citigroup to take the CQF. (Banks have only recently started sponsoring students to take Wilmott's classes, a tacit acknowledgment that quants need more holistic training.) "There's an arms race going on in quantitative finance," says one of the students. "The CQF gives us another weapon in our arsenal."

On a typical April weekday, Wilmott spends the morning in his office, a small, gray room that's completely nondescript save for the giant blackboard filled with mathematical notation. There he goes over the final touches of an options formula he's getting ready to publish with a former student. He then takes the tube across town to London's posh Grosvenor Square to meet with three former investment bankers who want to hire him as a quant on call for their consultancy startup. They pitch Wilmott while sitting in the modern dining room of Gordon Ramsay's Maze Grill restaurant. Wilmott tells them he'll think about it, then sets off down Oxford Street, a stretch of shops that's swarming with tourists.

Picking his way through, on and off his cell phone, Wilmott talks about the contradictions in his life: he's a car enthusiast who hates to drive; he goes on Swiss ski trips but doesn't ski. Though he's nearly 50, he could pass for 30-something, especially when dressed in skinny jeans, black Chuck Taylors, Gucci eyeglasses and a retro zip-up cardigan. This is his outfit of choice so long as he's not giving a speech somewhere, in which case he might change his shoes and throw on a jacket.