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From Black Holes to Black Scholes March 2013 Ruth Corrigan Banking Supervision

From Black Holes to Black Scholes March 2013 Ruth Corrigan Banking Supervision

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Page 1: From Black Holes to Black Scholes March 2013 Ruth Corrigan Banking Supervision

From Black Holes to Black Scholes

March 2013 Ruth Corrigan

Banking Supervision

Page 2: From Black Holes to Black Scholes March 2013 Ruth Corrigan Banking Supervision

PhD Astrophysics – Institute of Astronomy, University of Cambridge - 1992

Thesis Title: “Observational Manifestations of Gravitational Lenses”

BSc Physics – Queens University Belfast – 1987

From Black Holes to Black Scholes

Page 3: From Black Holes to Black Scholes March 2013 Ruth Corrigan Banking Supervision

Degree/PhD in Physics

Congratulations on being here! It’s a fantastic phase of your lives

Embarking on a PhD in Physics is not usually seen as a stepping stone to another career

Ending up in a different career is normally a two stage process:

From Black Holes to Black Scholes

(i) Decide not to pursue a career in academic science

(ii) Decide what to do next

Page 4: From Black Holes to Black Scholes March 2013 Ruth Corrigan Banking Supervision

Why did you leave Astrophysics?Reasons for leaving Astrophysics is a major point of interest in every job interview I do

The difficulty of securing a permanent position in academia

Being a research scientist can be very important to a person and to their image of themselves (not to be underestimated).

What to do next?

Considerations:

Will significant re-training be required?

Will the PhD be regarded as more than an undergraduate degree?

I identified two areas where the PhD would be seen as a desirable requirement:

Management Consultancy

Finance

How? – Talking to people

4

From Black Holes to Black Scholes

Page 5: From Black Holes to Black Scholes March 2013 Ruth Corrigan Banking Supervision

Information and support Cambridge Careers service

General advice on making a career change

Lots of specific information – particularly relating to Management Consultancy and Law.

Management Consultancy Finance

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Page 6: From Black Holes to Black Scholes March 2013 Ruth Corrigan Banking Supervision

Career Trajectory

Company Job Title Dates Events

Quantitative AnalystGlobal Equity Derivatives

1993 - 1998 1997 GED lost $800m – Top 4 Executives fired.

Investment Risk Manger – Global Financial Risk Management

2000 - 2002

Head of Front Office Risk5 – single strategy hedge funds€2bn under management

2002 - 2006 2005 3 of the 5 funds were closed

Risk AnalyticsBanking Supervision

2006 - Present 2008 Irish Government guarantees banks - €400bn they don’t have2010 IMF Bailout €64bn and counting

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Page 7: From Black Holes to Black Scholes March 2013 Ruth Corrigan Banking Supervision

Sources that worked for mespencerstuart.com

sandh.co.uk

imprintplc.com

badenochandclark.com

robertwalters.co.uk/

healy-hunt-partners.recruitmentsearcher.co.uk

michaelpage.co.uk

hoggett-bowers.com/

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Page 8: From Black Holes to Black Scholes March 2013 Ruth Corrigan Banking Supervision

efinancialcareers.co.uk

  EG Typing PhD into their browser yielded 68 results in UK - one example of which is given below

Analyst – Strats Division

Successful members of our team hold Bachelors, Masters and Doctoral degrees in Physics, Engineering, Mathematics, Computer Science and many other fields.

Although the work performed by Strats is financial in nature, applicants need not have specific financial knowledge or experience to apply. As a business unit, we are interested in bright individuals who have advanced mathematical and computational backgrounds and a willingness to learn about finance.

We are interested in applicants who possess skills in several of the following areas:

• • Mathematics: Understanding of partial differential equations, stochastic calculus, time series analysis, statistics and numerical techniques.

• Technology: Experience building large-scale distributed systems, implementing fundamental algorithms and working in different programming languages.

• Finance: Understanding of market dynamics and conventions, and of different products’ behaviors and specifications

From Black Holes to Black Scholes

Page 9: From Black Holes to Black Scholes March 2013 Ruth Corrigan Banking Supervision

efinancialcareers.co.uk

Typing “Graduate” into their browser yielded 146 results in the UK – one example of which is given below

Leading European Hedge Fund – Risk Analyst Position

• REQUIREMENTS:

• - 2:1 or higher degree from a top tier university.

• - Good Excel/VBA skills

• - Strong numeracy skills

• - A confident communicator with strong presentation skills.

• - Desirable but not essential: knowledge of risk measures, experience of fund structures and managed accounts, programming experience in either SQL or .Net (C#/VB)

•  

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Page 10: From Black Holes to Black Scholes March 2013 Ruth Corrigan Banking Supervision

Potential complexity is infinite

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Quantitative Analyst 1993 - 1998Global Equity Derivatives – London & Frankfurt

Technical Business

Stochastic Calculus Trading

Black Scholes Equation Marketing

Exotic Options IT

Greeks Governance

Economics Clients

Page 11: From Black Holes to Black Scholes March 2013 Ruth Corrigan Banking Supervision

Quantitative Analyst – Global Equity Derivatives

From Black Holes to Black Scholes

Black Scholes Equation

See “Options Futures and Other Derivatives” by John C. Hull

V (S,T) is the option payoffS is the spot priceT is the maturityR is the risk free interest rateσ is the volatility of S

Assume that options can be perfectly hedged and derive using:

Geometric Brownian MotionWiener ProcessStochastic Calculus

Page 12: From Black Holes to Black Scholes March 2013 Ruth Corrigan Banking Supervision

From Black Holes to Black Scholes

Wolfram Mathematica

Black Scholes Formula for Call Option – obtained by solving BSE for Corresponding terminal & boundary conditions

Page 13: From Black Holes to Black Scholes March 2013 Ruth Corrigan Banking Supervision

From Black Holes to Black Scholes

• Monitoring the risk of a £4bn Notional Exotic Option portfolio on the FTSE100 index

• Producing the “Greeks”

Delta

Gamma

Vega

Rho

Theta

Page 14: From Black Holes to Black Scholes March 2013 Ruth Corrigan Banking Supervision

From Black Holes to Black Scholes

Investment Risk Manager 2000 - 2002Global Financial Risk Management

• Equity Derivatives

• Risk Arbitrage (M&A)

• Index Arbitrage

• Volatility Traders

• Financial Regulation – Economic Capital, Regulatory Capital

Page 15: From Black Holes to Black Scholes March 2013 Ruth Corrigan Banking Supervision

From Black Holes to Black Scholes

Head of Front Office Risk – 2002 – 2006Dublin

• Risk Management of 5 single strategy hedge funds

FundGlobal Opportunities Fixed IncomeGlobal Macro Macro economic strategiesGlobal Equity Arbitrage Mergers & AcquisitionsConvertible Bond Arbitrage Equity/ Fixed Income /CreditLong Short European Equity Deep company knowledge

Page 16: From Black Holes to Black Scholes March 2013 Ruth Corrigan Banking Supervision

From Black Holes to Black Scholes

Banking Supervision – Risk Analysis 2006 -

• Assessing banks own credit models – sovereigns, corporate, commercial & residential property

• Assessing bank Operational and Market Risk models

• Capital & Liquidity assessment reviews

• EU-Wide Stress Testing

Requires a broad and deep understanding of banking activity, including asset and liability management, credit portfolio management, treasury functions, complex risk and capital management issues

Page 17: From Black Holes to Black Scholes March 2013 Ruth Corrigan Banking Supervision

Positives and Negatives

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Advantages Caveats

Uses quantitative/problem solving skills Action is not in the quantitative research team

Largely a meritocracy – opportunities to progress

Can be aggressive competitive environment

Diverse range of challenging projects to work on

It’s possible to be pigeon-holed and narrowly focussed

Global Mainly confined to large financial centres

Well paid Long hours particularly during crises

Page 18: From Black Holes to Black Scholes March 2013 Ruth Corrigan Banking Supervision

From Black Holes to Black Scholes

If applying for finance jobs, be aware of recent significant events in financeDate Event

H1 2007 Subprime mortgage crisis in US

Summer 2007 Liquidity crisis in banks

Sep 2007 Run on Northern Rock

Sep 2008 Collapse of Lehman Brothers

Q3 2008 Ireland underwrite banking system, Iceland’s banks collapse, UK bails out top banks

Q3 2009 New Greek government reveals Greek debt double previous estimate

Q2 2010 Start of eurozone crisis – Greece bailed out

Q4 2010 Ireland bailed out by EU

Q2 2011 Portugal bailed out by EU

Q3 2011 Greece receives 2nd bailout

Q2 2012 Libor Fixing admitted by banks