by Quantitative finance is not a toy for specialists. It helps you understand how to invest, what risks you take, and even whether a purchase in instalments is worth it.
We have discussed this with Emilio Barucci, Professor of Financial Mathematics at Politecnico di Milano and Director of QFinLab – Quantitative Finance Lab, a Department of Mathematics laboratory specialised in research and training on mathematics applied to finance, with a strong focus on knowledge transfer to both industry and society.
QFinLab: research, teaching and interface with the financial industry
What inspired the creation of QFinLab, and what is the idea behind it? Was it also to take financial mathematics outside the circle of experts?
I joined the Politecnico in 2005. In the Mathematical Engineering sector, the Department of Mathematics decided to build a research group and a training profile in quantitative finance, i.e., everything related to mathematics applied to finance. The experience of Mathematical Engineering is unique in Italy, at least for the high standards and success recorded. Mathematics applied to finance appeared to be a great training opportunity, and an interesting field of research and knowledge dissemination.
The aim was to create a research and training centre that would address the financial industry by conducting research and teaching designed to build student profiles and results that “speak” to the financial world. We created this lab. Today it counts a team of six permanent staff and six PhD Candidates and junior researchers. We bring together researchers who deal with mathematics applied to finance in the Department.
Hence, it does not only concern teaching and research but also the third mission?
We carry out teaching and research, but we want to be a point of reference in the financial community for the development of quantitative methods. Going into the details, we have three master’s degree programmes (two on fintech and one on quantitative finance) in partnership with POLIMI GSoM, and we have a dedicated path to facilitate the convergence of students and the job market. Moreover, we have an active channel for reflection on ESG issues. We hold seminars open to industry, and publish a report every November on how listed Italian companies perform in terms of ESG.
What we produce here goes beyond training and research. We want to be useful to society with strong knowledge dissemination features. Over the past few years, we have implemented a financial education process. We visit schools and also work with an adult audience, providing basic information on personal finance.
Fintech and artificial intelligence: what is really changing
Are artificial intelligence and machine learning actually revolutionising everything, and how is this happening?
Definitely they are. The revolution is already in progress. Digital innovation is changing the way we do banking. We studied it with digital assets and the digitisation of payments. This revolution is having a remarkable impact on how we work in the banking and insurance sectors; hence, also on what we teach. The digital revolution has already marked a structural change in the world of finance.
Then there is the issue of artificial intelligence, which concerns automation and optimisation of certain processes in the financial world.
Sustainability/ESG and green finance: the impact on investments and prices
Let’s touch on the other point, sustainability. Specifically, what have you been working on?
We have focused on understanding the effects of green finance. Sustainability goals affect investments and stock prices. This concerns both stocks and bonds. We have sought to identify the impact of focusing on green issues on individual investment choices, and on the prices of financial securities.
Three concrete questions that quantitative finance attempts to solve
A common misconception is that mathematics is not very “applicable” in everyday life. What practical problems do you like to solve at QFinLab?
We typically solve three very concrete problems. Let me give you an example.
- If I have 1,000 euro, how do I invest them in the best possible way to meet my needs?
- Why is a security worth a certain price? Is it overrated or underrated?
- I come to understand what risks I take when investing in a financial stock.
But we also solve everyday problems. For instance, is a loan to buy a smartphone in instalments advantageous or not? These are very concrete things, which require some knowledge of mathematics.
What can a mathematical model do, and what can’t it do?
Mathematical models are useful, but they do not solve everything. How far can they reach and what are their limitations?
They tell you how to find your way when there are numbers that provide unequivocal answers about how expensive a loan is, and what risk you are taking. They give you clear answers to well-defined problems.
After that, whether or not to invest in a certain company also depends on broader opinions and assessments that mathematics cannot always describe.
Is there a bias about your work that refuses to be crushed?
The idea that finance is an art for sorcerers is disappearing. Mathematics in finance has helped make it increasingly professional. It has brought an element of cleanliness to the necessary skills and knowledge. The stereotypical representation of the mathematician or the “brain” physicist in finance is now outdated. Today it is a well-established component in the financial world.
Financial education in Italy: awareness and who should take responsibility
Do you notice an increase in awareness about the importance of training in your “outward” work?
Yes, I do. The use of mathematics in finance dates back to the late 1990s. There was later a boom in the 2000s. The financial crisis has changed priorities. Today, knowing mathematics in finance has become a necessity. All banks and insurance agencies possess professional expertise in this area. From this point of view, a graduate from the Politecnico has additional skills compared to a graduate in Economics. This is acknowledged by the job market.
Is the average level of financial awareness in Italy low?
It is low. We have to work on that.
Who should take responsibility?
Definitely schools. There is considerable progress, but we are still behind.
Knowledge dissemination free of trivialities – the “dual register” between rigor and daily life
How is this knowledge conveyed without oversimplification or trivialities?
There is an issue with financial literacy. We need to develop two aspects, precisely to produce results and methodologies that respond to very complicated problems, while maintaining scientific rigour. There are also issues that affect everyday life. We address them with a different language, with schools and with the adult public, to convey basic knowledge.
How does this work in practice in the schools you visit?
Every year we involve several hundreds of schools in online projects. We send materials to professors and work in flipped classroom mode, with digital content (videos, exercises). We also use MOOCs (we conducted three of them with METID). Students learn through videos and study the subjects. Then we validate the course with the teacher.
Do you have direct contact with students?
Contact is not always direct. But we organise activities like Policollege, where we talk with them, and financial education activities in summer during which we meet them.
Research hot topics – climate, financial crises, and digitisation
What are the hot topics of research in mathematics applied to finance, today and tomorrow?
I would say that we face three great challenges:
- Climate crisis and ESG: understanding how the climate crisis will impact the economy and, subsequently, finance;
- Financial crisis management: it has become much more complex after the 2008 crisis;
- Digitisation and artificial intelligence: a transformation that affects the financial world.
Along with the Department of Mathematics, one issue we are also musing over is what aspects of mathematics are needed for artificial intelligence.
Studying mathematics today
Have you noticed an increase in student interest in mathematics?
It is definitely not diminishing. I would say it is consolidating.
Does the job perspective count?
Our students have no problem finding their way into the job market. They mostly go into what we trained them to do.
In my personal path, “I started with problems, not mathematics”.
What was Emilio Barucci’s first encounter with mathematics?
I took a degree in Economics and Business. I developed a passion for finance, and then found that finance needed mathematics to be interesting.
I consider mathematics a tool to understand and solve interesting financial problems. I did not start from mathematics. I started from problems and realised that mathematics is an essential tool.
What makes you say, even today, “I like to study these topics”?
I challenge myself with an interesting, concrete problem, and use the mathematical tool to solve it. It is a challenge I still consider very interesting.
“Mathematics teaches us to be precise”
What does mathematics teach us today?
It teaches us to be precise. It teaches us to formalise a problem and solve it. Without mathematics we would not be able to find adequate solutions to the questions we ask ourselves in everyday life.
Have you a piece of advice for those who want to learn more about the topic?
To understand finance and realise that you need a certain amount of expertise, I recommend two movies on the financial crisis.
The Big Short (2015) very effectively and ironically describes how some investors understood in advance what was happening in the “subprime” mortgage market, and “bet against” that system before the crash.
Margin Call (2011) is almost an “office thriller”. In barely a few hours, inside a large investment bank, you discover that risk has become unmanageable, and witness the decisions — technical laced with moral implications — that are made when time is pressing.
In conclusion, the impression is that quantitative finance, for Barucci, is not just a discipline “for specialists”, but a problem-solving tool, a way of measuring risks, and making appropriate financial decisions. QFinLab’s research follows the transformations underway without chasing slogans. The clear objective is to train solid skills while also contributing to financial literacy, which remains one of the most urgent challenges in Italy.