Thanks to a surge in regulatory demands, model validation is one of the hottest areas to be for quants in investment banking right now. Morgan Stanley has just lost one of its most senior quants in this area to Barclays in New York.
Patrick Chen, the former global head of the model review group at Morgan Stanley, has just joined Barclays as a managing director in New York. He spent eight years at Morgan Stanley, joining from Lehman Brothers, where he was global head of credit risk.
Chen follows Eduardo Canabarro, the global head of risk analytics at Morgan Stanley, who joined Barclays in May last year as global head of model validation in New York. Dennis Zhang, who was a VP in model validation at Morgan Stanley in New York, also joined Barclays' team in November.
Chen has a PhD in Physics from University of Illinois at Urbana-Champaign, which he gained in 1994. For the past 21 year, he's held various quant jobs at Bank of America, Barclays and Merrill Lynch before joining Lehman Brothers in 2005.
While hedge funds attempt to lure quants across with the promise of being at the forefront of the big data trading revolution, the sell-side is still hoovering up mathematical PhDs for more pedestrian roles. Model review, or 'model validation', jobs have proliferated in investment banks over the past few years, and front office traders and structurers have moved across into this area. This is largely because regulators determined that different banks used different mathematical models to calculate their risk exposure. Quants in model validation therefore ensure that banks' quant models fit with regulatory requirements.
Model validation roles are increasingly in demand, and banks now employ huge teams of quantitative model validators in their risk functions, but often they're located in offshore locations. At Morgan Stanley, its offshore centre for its model review group is in Budapest and the bank says that the office works on "model issues across all asset classes globally".
Model validation roles are based outside of the front office, and many quants complain of low pay and difficulty moving on to the trading floor later in their career.
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