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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
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
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
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
From Black Holes to Black Scholes
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
From Black Holes to Black Scholes
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/
From Black Holes to Black Scholes
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
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)
•
From Black Holes to Black Scholes
Potential complexity is infinite
From Black Holes to Black Scholes
Quantitative Analyst 1993 - 1998Global Equity Derivatives – London & Frankfurt
Technical Business
Stochastic Calculus Trading
Black Scholes Equation Marketing
Exotic Options IT
Greeks Governance
Economics Clients
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
From Black Holes to Black Scholes
Wolfram Mathematica
Black Scholes Formula for Call Option – obtained by solving BSE for Corresponding terminal & boundary conditions
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
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
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
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
Positives and Negatives
From Black Holes to Black Scholes
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
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