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How to be a quant

If you want to immerse yourself in financial engineering but don’t know where to get into the algebraic ocean, Emanuel Derman is here for you. Author of My Life as a Quant, former head of the equities quant strategy division at Goldman Sachs, and director of the financial engineering programme at Columbia University, Derman gave an interview to TradingMarkets.com, the high points of which were as follows –

· Don’t go straight to quant

“Get a bachelor’s degree in solid subjects like math, statistics, applied math, – physics, yes or no. I’m a physicist but I don’t think that’s critical. But a lot of rigorous things.

Financial modeling isn’t that rigorous and though many people may not agree with me but I think it’s a mistake to start it too early. That is, unless you want to become a trader when you’re 18 and know that for sure.

But if you want to be a financial engineer I think you first need a really firm basis in skills that are not ephemeral, you know? You’re always going to need to know real analysis or computer programming or statistics.

I’m not saying don’t do any financial engineering, but I’m a little bit wary of jumping straight into the field.

· Do a Master’s or PhD

“Then, in an ideal world, learn some finance and then work for two years in the financial business. That will help you decide whether you like the research side or the trading and sales side of the business.

Then, if you want to be a financial engineer, come back and get a master’s degree or a PhD in that field. And if you don’t, go back and work on Wall Street or get an MBA or do something completely different.

But there is more than one way to skin a cat. You can go straight to a master’s in financial engineering. Most of our students in the program actually come directly from undergraduate school, get a Masters and then go out into the world and get jobs.”

· Try not to be American

“90% of them [young quants] are foreign-born, foreign-educated.”

· Get a job on the buyside

“I think the big difference in the last seven or eight years is that most people used to go the sell side. And now many go to the buy side, to asset management, and to hedge funds. That’s where the jobs are.”

· And then make lots of money doing things no one else has thought of

“If you can find places where people have different aims and different metrics then you can make money between the cracks – It’s sort of like lotteries in the sense that people will pay a small amount of money for less-than-fair odds because they don’t really care about the odds.

You can get more of that in places where there are new products, and particularly high margin products…. it’s probably harder now because everybody’s plunging in and markets go electronic very quickly, where as before, they weren’t.”

Read the entire interview with the king of quants here.

Comments (9)

  1. The thing about these King Quants (be careful how you say that) is that they got in about 10-20 years ago. They offer as much insight into careers as they do into mathematics.

    Either they calculate fancy integrals all day, or they confuse risk with uncertainty. The former sit on the front office, whilst the latter sit in model val.

  2. I can tell you first hand that quants are at banks for one reason. To substantiate mathematically in order to dazzle ignorant investors. Correlation Trading being one example and Structured Credit being another (unless you moronically believe the two are the same). You do not need a PH.D in physics to wager on default risk i’m afraid. You can however use one to inject mathematical marketing concepts that mean nothing to most people (and don’ work viz. gaussian copula and cliff risk…). These concepts make buysiders feel intellectually inferior and therefore obliged in many cases to get stuffed just to satiate their own needs to fend off their inferiority. Its the oldest trick in the book. The only reason hedge funds are the place to be now is that they are short of investors and need to turn the same tricks.

  3. “Try not to be American” – Ha …great advice. Like that’s something you can change!

    PatheticAdvice Reply
  4. @PatheticAdvice – Humour was intended there.

    Sarah, Editor, eFinancialCareers Reply
  5. all americans grow up wanting to be sales and marketeers in banks

  6. Really bc, all of them? A fair few of them seem to grow up wanting to be marines

  7. Are unsociable smelly geeks, found in dark corners, the old Goldman Sachs?

  8. “Are unsociable smelly geeks, found in dark corners, the old Goldman Sachs?”

    No. Next question.

    TheJokeIsNoLongerAmusing Reply
  9. Completely agree with qwanty,

    The title of the article “how to be a quant” is rather ironic as the question implies there will still be meaningful demand for our geeky friends and their pseudo-sophisticated products!

    As we have found out from the financial crisis, the whole exotic products industry is a fallacy. And no matter how you fancify the products, it boils down to REAL risks and REAL returns in the REAL economy!

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