UK
We asked quantitative finance overlord Paul Wilmott what the future holds for quants following the financial crisis. Are their services still required? And if he weren’t putting his quant skills to use in the financial sector, where would he be applying them instead?
1) Given exotic structured products are no longer the hot topic they were, have prospects for quant careers gone dramatically downhill?
There will always be a need for quants. You can’t go backwards to some kind
of pre-quant dark ages: the scientific genie is out of the bottle.
Don’t forget that people have remarkably short memories: I expect that we will go back to the old status quo a lot faster than most people think. I am willing to bet that there will be a return to exotic instruments over the coming months and years, and therefore a need for even more quants. Things will rapidly go back to pre-crisis normal.
Note that I’m not saying that this is a good thing: this crisis has been wasted, both in economic and quant research terms. There are some really good risk management models and valuation techniques around – there have been for decades – but people stick with what they know.
Quants are currently regrouping and looking at how to make modeling and risk management better, but there won’t be any paradigm shifts unfortunately.
2) Where will quants be needed in investment banks in future?
Algorithmic trading is a big user of quant skills.
Quantitative techniques are also being used in previously qualitative areas such as M&A. For example, it’s possible to build models that value two companies in isolation and then look at their value when combined. This highlights things like the benefits from economies of scale for example, or the downside from rebranding. Once banks have a taste of what mathematics can do, it’s difficult to go back.
3) Which disciplines should quants specialise in if they want to ensure their future employability in financial services?
Common sense. And in appreciating it’s not all about the mathematics.
4) You designed and run the Certificate in Quantitative Finance, is this an alternative to a mathematical MSc or a PhD?
In my opinion, yes. I am not a great fan of all the MScs or PhDs which are focused on financial mathematics. I feel that they have transformed mathematical finance into a very abstract branch of probability theory, and crowded out all the physicists, chaos theorists, applied mathematicians and engineers who have something equally – if not more – valid to add. And you’ve seen where this has led us.
The CQF is all about creating rounded quants, and quants who are streetwise. It teaches the ideas of modeling, but it also teaches that the models are fallible. At every stage, we warn our students of the dangers of putting too much trust in them. It’s about taking a pragmatic approach and using the right maths for the job. Unlike most financial Masters courses, we don’t complicate things unnecessarily. Nor are we dumbing the maths down. But we are teaching a healthy degree of skepticism.
Whenever I come across a quant who has done a financially focused Masters or PhD, my heart sinks. They are taught a very limited set of mathematical tools, and come out thinking that’s what it’s all about. It isn’t. The CQF teaches a much wider range of maths than you get on a Masters’s programme, and we find many banks would rather hire someone with the qualification than with a finance Masters or PhD.
5) Are most students of the CQF working in finance already?
Most students on the CQF are already working in finance, and the qualification is paid for by their employers. We have great support from banks and hedge funds. What we don’t see so much of on the CQF are the regulators, which seems curious given regulators ought to know at least as
much as the people they are regulating.
6) Have you noticed any reduction in the number of people studying the CQF since the financial crisis began?
On the contrary, numbers are up 30% on just six months ago.
7) If you weren’t specialised in financial services, which industry would you personally like to apply your quantitative expertise to over the next five years?
I’m an applied mathematician. I trained in physical science long before I became a financial engineer, and have worked on all sorts of different problems.
I think economics and other social sciences are desperately crying out for some common sense from applied mathematicians. Why are we still debating the merits of communism versus capitalism, or different schools of economic theory? This sort of thing should have been resolved years ago.
Equally, climate change offers an interesting discipline for applied mathematicians.
I think you should have an MSc course director counter some of these arguments. Paul may be the “King of Quants”, but he is plugging his CQF here. Most MScs offer a more rigorous programme of study, as well as coming under external scrutiny.
Thanks Giles – good suggestion. We’ll try and find one.
“I think economics and other social sciences are desperately crying out for some common sense from applied mathematicians. Why are we still debating the merits of communism versus capitalism, or different schools of economic theory? This sort of thing should have been resolved years ago.”
Are you kidding me?
So much damage has been done by the quant industry precisely because they have propagated an unrestrained “cult of measurability”.
And now Wilmott believes you can apply mathematics to resolve long-standing issues of social science, so many of which are by their very definition subjective and gray?
I think Mr Wilmott would be well served to read some philosophy, and perhaps some postmodern theory to boot.
Science is a wonderful thing, but you can’t quantify everything. By providing the illusion that you can and providing the mechanisms with which to sustain that belief, you can do enormous long-term damage.
See also the Global Financial Crisis.
True, you cannot quantify everything, especially in media of uncertainty such as the financial markets. That is why a science which quantifies and qualifies the behaviour of uncertainty is required. It is even more damaging if one abstains from attempting to predict and address influences of these uncertainties on the future.
“I think economics and other social sciences are desperately crying out for some common sense from applied mathematicians. Why are we still debating the merits of communism versus capitalism, or different schools of economic theory? This sort of thing should have been resolved years ago.”
Can’t belive he said that! So much pretention, like many math nerds he believes the world is expecting them to save us! Quants failed totally M. Wilmott, your time is gone and for a very obvious reason : it didn’t work!
You cannot quantify everything, but I can…
Free advertisment, well done Paul. Or did you pay ?
Three words for Mr Wilmott – regulation, regulation, regulation. Hopefully, as he doesn’t seem capable of understanding what common sense is, the public together with the lawmakers will freeze him out the market :).
I quote the placard placed in the office of Mr. Albert Einstein, “Everything that counts cannot be counted and everything that can be counted does not count.”
If Mr. Willmott’s CQF program is alertig its students in ample measure to be using commonsense he is doing fine enough.
Climate change mathematics… : One minus one equals no climate change or 0*10000=0 climate changes etc…. I see Don Quixote, overlord of thin air…
He sounds like a silly quant to me…
From what I hear, Warren Buffett relies on very simple valuation metrics, using computers just to play games…
A brilliant article, Paul Willmott is a quant guru, and companies such as Towers Watson and Mercer will be the future of the field of quantitative analysis, similar to the actuarial field for insurance. I’m not sure the CQF can rival the MSc Quantitative Finance at Cass Business School, but it definitely surpasses that of any other university.
I /we interviewed several CQF holders. They lacked the practical skills we needed. Wasn’t impressed at all. MSc will stand you in better light long term IMO.
Just a minor correction to Sushi Kedia, the phrase used by Einstein is:
“Not everything that counts can be counted, just like not everything that can be counted counts”
He wouldve been very specific about not making such absolute statements.
Wilmott is not really a quant though
more self claimed “super quant”
Has barely worked in the industry and is hated by most but from Taleb who is equally a buffon
@Truth Hurts – i don’t understand the actuary stuff. Cass is pretty poor too anyway and grossly overpriced
Long live the king. Put simply, CQF is better than Oxford, better than Imperial and better than Cass.
Wilmott, please can you quantify the economic and social benefits of exotic derivatives.
Mr.Willmott has totally commercialised learning. He has completely forgotten why people choose to do a degree instead of just doing many industry specific certificate courses. CQF being better than MSc/PhD is just absurd. Cant believe he said all this.
Blaming the quants for the financial fiasco is not fully justified. I think traders and head of desks should take majority of the blame as they are supposed to understand the models before they start managing their risk using the models developed by quants.
Sarah, it will be interesting if you can get some practitioner to explain exactly to what extent does the models play a role in structured credit products (like CDO, CDO&2 etc)?
good article…would be very inetersting reading an interview from somebody with either Master in Finance or Phd to hear a diiferent story..cheers
I think a Mif from LBS not only develops the necessary quant skills but also helps drill common economic and finance sense into you much more that CQF does. Whilst the Mif is more about finance and the application of mathematics to some financial problem the CQF is a collection of mathematical tutorials that a decently educated person should be able to do on his own. I would never compare the two having done a Mif last year and working in developing quant models.
Dont get carried away by the CQF propaganda . Its only 6 months course and you will not gain much from it that you could from self study.
“The CQF teaches a much wider range of maths than you get on a Masters’s programme, and we find many banks would rather hire someone with the qualification than with a finance Masters or PhD.”
I cannot believe Wilmott said that. I do have an M.Sc. and a Ph.D. in QF. No “certificate” can replace that. This is just pathetic.
Just further proof that banks have more money than sense sending people on a six month course for about 15,000. Hah! And yes, Cass is a joke – I hear most of the intakes stare blankly at the stochastic calculus and C++ programming that they expected to “learn” in 9 months. Another example of people being blinded by their own hubris. Oh dear.
I have done the CQF… I felt really let down by it (I am a FO quant in a big investment bank). The quality of the programme is very poor in terms of the mathematics that they teach you. Sure they broadcast the lectures online and they have state of the art facilities but all this cool stuff is useless if you do not teach the mathematics in enough rigour. Yes, focusing only on rigour is something that should be comfined to university campuses, but rigour is stage 1 of the path to a successful quant career. Stage 2 is the practical implications and yes the CQF emphasizes about the failings of various models, etc but FUNDAMENTALLY it fails at the pre-requisite stage 1. They do not teach enough maths. FUNDAMENTALLY they do not discuss theoretical risk management. To be a good quant you start at the theory and then if you are capable enough you transition into the practical side. The programme funamentally fails because it tries to do the latter without the former.
And to teach the theoretical underpinnings with enough rigor takes time, right? Not a couple of months. Ahahahah! That’s why real quants have PhD’s. There’s no free lunch. Just ask Wilmott – he has a PhD.
Is Wilmott’s course so much worse than a lot of M’s in Finance out there? A degree should be education not training.
On the medium and long term, a solid background in Stochastics, Measure Theory and proper Maths of Finance will get you a lot further.
Also, he sounds jealous of pure mathematicians
Good one there by the Math Guru. We need more mathematicians in the world to make it a better place!
Thanks Paul