Copyright © 2012 by S.Srikantia. All Rights Reserved.

JOBS IN WALL STREET

Now, for nearly two decades, American universities have been training

mathematical finance professionals for Wall Street. A degree in Quantitative

Finance became a short cut to Wall Street. The Courant Institute at New York

University, University of California, University of Chicago, and Rutgers

University began academic programs to train Quants for Wall Street. Carnegie-

Mellon University began offering a supplemental crash course Quant program for

MBA graduates. Engineering schools and mathematics departments of many

American universities began offering master’s degree programs in Financial

Engineering, Quantitative Finance, Computational Finance, and Mathematical

Finance. In a new wave, MBA graduates and Ph.D. graduates began enrolling at

universities to earn a degree in quantitative finance. The new Quant brigade

invading Wall Street began predicting stock market movements, assessing

financial risk, pricing derivative financial products, and managing private equity

funds. The exotic financial instruments evolved by the Quants would now allow

banks to measure, control, transfer, distribute, and disperse risk. Banks in Wall

Street could now engage in riskier lending practices and then offload the risk to

banks in Europe and Asia.

The Quant models guaranteed high returns, but were not exactly infallible. There

was no guarantee that the underlying assumptions were flawless. Moreover, the

Quants were physicists and mathematicians. They were not hard-core economists.

Quants with less experience with statistical methods preferred to utilize partial

differential equations. They often used numerical analysis, finite differences, and

Monte Carlo Simulation to solve mathematical problems. The first generation of

Quants hired by Wall Street were physicists with Ph.D. degrees. At the present

time however, universities have been producing entry-level Quants with 2-year

Master’s degrees in Financial Engineering, Financial Mathematics, and

Mathematical Finance. The best Quant schools are Carnegie Mellon University,

Columbia University, Cornell University, New York University, Princeton

University, Rutgers University, Stanford University, University of California at

Berkeley, University of Chicago, University of Michigan, Boston University,

Georgia Institute of Technology, University of Toronto, and Baruch College. The

Lally School of Management at Rensselaer Polytechnic Institute has a program in

Financial Engineering and Risk Analysis (FERA). The Stuart School of Business

at the Illinois Institute of Technology offers a Master’s degree program in Finance.

Companies interested in Quants include JP Morgan Chase, Bloomberg, Goldman

Sachs, Bank of America, Standard and Poor’s, Moody’s, Credit Suisse, and

Deutsche Bank, Morgan Stanley, Ernst & Young, Fidelity Investments, Numerix,

Copyright © 2012 by S.Srikantia. All Rights Reserved.

and Wachovia.

In banking outfits dealing with stocks and bonds, the Quants assist sales teams and

traders. Over the years, as customers have become more financially sophisticated,

a new generation of financial instruments known as derivatives have evolved.

Fundamentally, derivatives are securities that promise a profit outcome based on

some underlying primary securities or primary assets they are financially linked

to. The value of these derivatives depend on the performance of the underlying

securities or assets. Financial models built by Quants aim to establish rough

guidelines that might help evolve derivative securities from the underlying primary

securities. Eventually, by mathematically predicting the behavior of underlying

securities based on interest rates and volatility, the financial models may help

affirming scientifically accurate prices for derivative securities. Quant

mathematics looks at modeling behavior of debt and equity issues. The Quants

working as researchers help in building sophisticated financial models to allow

pricing and hedging of derivative securities. The models may include simulations

and complex algorithms. Incidentally, the financial models need to be calibrated

to certain critical parameters such as the money lending rates in the banking

industry. Quants are expected to be capable of developing computer programs

based on the financial models they create. Most banks wish to have programs

written in C++, while Visual Basic is used for designing interfaces. Sometimes,

there is a conflict between traders and Quants. Quite often, the traders downplay

the importance of quantitative analysis. Incidentally, Wall Street business analysts

who write columns for newspapers are not allowed to fraternize with investment

bankers. Any exchange of information between investment bankers and analysts

run the risk of being construed by regulators as insider trading exercises. Wall

Street jokingly refers to this as the China Wall between investment bankers and

industry analysts.