Financial Services Industry Job Market for Math & Stat ...orion.math.iastate.edu/dept/CareerDay/2011/Andrei.pdf · Overview of financial services industry job market ! Types of financial

1 1 © 2011 Quantitative Risk Management, Inc.

!  Overview of financial services industry job market

!   Types of financial services industry positions requiring advanced quantitative skills

!  Specifics of financial services industry jobs for math and statistics graduates

!   Job search tips

Financial Services Industry Job Market for Math & Stat Graduates








!  QRM develops comprehensive risk management solutions used by the largest international banks, insurance companies and other financial institutions

! 21 of the top 50 banks in the world, ! 41 of the top 50 banks and government sponsored enterprises in

North America including 10 largest U.S. banks, ! 35 of the 40 largest Mortgage Banks.

!  We hire professionals with advanced degrees in such quantitative fields as Math, Statistics, Physics and Engineering.

!  As the head of quantitative research, I personally review many resumes and interview job applicants.

QRM Is a Leading Provider of Risk Management Solutions Used by Largest Financial Institutions Around the World


!   Financial services industry plays a major role and is a large part of the U.S. economy

! It includes banks, insurance companies, asset management companies, trading firms (such as hedge funds), mortgage originators, pension funds, etc.

!  Complexity/sophistication of the overall financial services industry and the financial products/services it offers has been growing exponentially

!   To manage this complexity, the industry relies on sophisticated quantitative models and employs a large number of people with advanced degrees in quantitative fields such as math, statistics, physics and engineering

Financial Services Industry Has a Great Need for Graduates with Advanced Degrees in Math and Statistics


!  Pros: ! High compensation (pay) levels ! Very interesting problems/projects to work on ! Very dynamic, vibrant, high-thrill work environment

!  Cons: ! Relatively low job security

! Banks and trading firms lay out people as easily as they hire them ! High work pressure (stress level) and peer competition

Pros and Cons of Financial Services Industry Jobs








!  Math, physics and engineering graduates with advanced degrees are often hired as Quantitative Analysts (Quants) which can be divided into the following broad categories:

! Trading desk and back office quants ! Risk management quants ! Financial software company quants

!  Graduates with advanced degrees in statistics are often hired to do econometric research and model development

Financial Services Industry Positions for Graduates with Advanced Degrees in Quantitative Fields


!   Trading desk quants support trading activities and reside on the trading floor among traders

! Very stressful work requiring very fast and sharp mind ! Highest compensation in the form of bonus during “good” years ! Tend to be highly specialized

!  Back office quants also support the trading but have a longer term focus by concentrating on developing and implementing models and pricing techniques

! Less stressful, more long-term ! Lower but more stable compensation than trading desk quants ! Require good programming skills

Trading Desk and Back Office Quants


!   Financial risk management is the fastest growing area of employment in financial services industry for people with advanced quantitative skills

!   Banks and financial institutions such as insurance companies and pension funds are highly regulated and are required by law to monitor and manage their risks

! Recent financial crisis brought about sweeping changes to the regulatory environment in the form of Dodd–Frank Wall Street Reform and Consumer Protection Act requiring banks and other financial institutions to do much more in terms of measuring and managing their risks

!   Risk management is a highly quantitative field which heavily relies on the use of sophisticated quantitative models which creates high demand for people with advance quantitative degrees

Risk Management Quants


!   There are many companies developing and supplying financial software used for both trading and risk management

! QRM is one of them

!   In addition to quantitative skills, financial software company quants need to have strong programming skills and aptitude

!  Along with the risk management, financial software industry jobs tend to be most stable but have limited upside in terms of pay

! Less risk, less pay

Financial Software Company Quants


!  Statistical analysis of financial data (time series) plays a crucial role in financial applications

!  Econometric models based on statistical analysis of historic financial data are widely used for modeling financial markets

! In trading applications, econometric models are often used when looking for sell/buy signs ! So-called statistical arbitrage is a widely used approach in trading

! They are widely used in economic behavioral modeling ! For instance, in modeling mortgage prepayment and default behavior

! In risk management, they are used to project economic factors forward in time

Econometric Research and Model Development Positions for Statistics Graduates








!  Practically all the areas of applied math and statistics find their use in the modern financial applications

! Probability, statistics, stochastic processes, ODE, PDE, algebra, analysis, numerical methods, etc.

!  Since financial (and economic) mechanisms/laws are the result of collective action and beliefs of market participants, they are relatively crude when compared to the laws of physics and cannot have too complex (deep) structure

! To quantitatively model such relatively unrefined environment, breadth of quantitative knowledge and skills is of much higher importance than depth in any specific area

Breadth of Knowledge and Skills Is More Important Than Depth in Any Specific Area


!   Financial applications are all about practical results ! Model is considered to be good if it works well even if it is not based

on sound theoretical foundation ! Nobody loses sleep about such theoretical aspects as, for instance,

existence and smoothness of solutions

!  Exact formulas are rare, therefore market practitioners often rely upon approximate and numerical solutions

! "An approximate answer to the right question is worth a good deal more than the exact answer to an approximate problem.“ John Tukey (an American statistician)

!  Quants spend most of their time developing and implementing efficient, effective and robust numerical algorithms and approaches

Numerical Aspects Dominate Theoretical Ones


!  Knowledge and especially understanding of the practical context of the business are extremely important

! Quants need to understand whether any particular solution/result makes practical sense

!  Strong practical intuition is of extreme importance for a successful career in finance

! Being strong in quantitative aspects is never enough

Practical Aspects of the Business Are of High Importance


!   The problems and projects people deal with in financial applications are often of non-traditional nature and require non-standard thinking

! Ability of thinking out-of-box and find non-standard solutions are very highly valued

!  During interviews for quant positions at Wall Street firms, candidates are often asked very tricky, technical questions requiring non-standard thinking

! The book “Heard on The Street: Quantitative Questions from Wall Street Job Interviews” has an excellent collection of such questions

Non-Traditional (Out-of-Box) Thinking Is Highly Valued








!  When searching for candidates to fill quant positions, financial companies are looking for:

! Strong quantitative background - advanced degree in a quantitative field (math, physics, engineering) from a good school

! Knowledge of quantitative finance ! Specialized courses taken, books read, projects done, etc.

! Strong computer skills/aptitude ! Any relevant practical experience such as summer internships,

private trading, relevant research projects ! Any full time work experience in finance or quantitative

programming (C/C++/C#, Java)

Skills, Background and Experience Financial Companies Are Looking For


!   There are many very good established graduate programs in mathematical finance and financial engineering

! University of Chicago: M.S. Financial Mathematics ! New York University: M.S. Mathematics in Finance ! Columbia University: M.S. Financial Engineering ! Carnegie Mellon University: M.S. Computational Finance ! University of California at Berkeley: M.S. Financial Engineering ! Stanford University: M.S. Financial Mathematics ! Purdue University: M.S. Computational Finance ! Illinois Institute of Technology: M.S. Mathematical Finance

!   International Association of Financial Engineers (IAFE) has a list of over 70 such programs on its website www.iafe.org

Mind Competition from Established Quantitative Finance and Financial Engineering Programs


!   Learn as much as possible about professional careers in quantitative finance to see whether it would fit your skills and your long term career goals

! See the list of recommended books in the next slide

!  Be realistic about your chances to land an industry position ! You are competing against a large number of qualified candidates

!  Educate yourself in the area of quantitative finance by reading books, taking courses, enrolling in special programs, etc.

!   Talk to your advisor about doing a research project in the area of quantitative finance

How to Prepare for a Career In Finance


!   E. Derman “My life as a Quant: Reflections on Physics and Finance”

! Good, quite enjoyable reading about a typical journey from physical science to finance written by one of the well known quants

!   P. Wilmott, S. Howison and J. Dewynne “The Mathematics of Financial Derivatives: A Student Introduction”

! Good, accessible introduction to the mathematics of financial derivatives

!   J. Hull “Options, Futures, and Other Derivatives” ! The financial derivatives “bible” every quant-to-be has to read

!   T. Crack “Heard on The Street: Quantitative Questions from Wall Street Job Interviews”

! Excellent collection of technical questions from Wall Street job interviews

Recommended Reading

Documents

Financial Services Industry Job Market for Math & Stat ...orion.math.iastate.edu/dept/CareerDay/2011/Andrei.pdf · Overview of financial services industry job market ! Types of financial