1.01.2005

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» Q&A: What is a Quant?
» Q&A: What exactly does a Quant do in real life?
» Q&A: I have a feeling that when headhunters talk about "trading desks"...
» Q&A: How is working at Hedge Funds different from working at Investment Banks?
» RANT: What is a Quant? II
» Q&A: How is working at Hedge Funds different from working at Investment Banks? II
» Q&A: Why do I get the impression that Back Office positions get looked down upon a lot?
» Q&A: How can you tell a Quant from a Trader?
» Q&A: What does it mean to "have buy-side experience"?
» Q&A: What's the best way to go from an OO developer to...

Q&A: What is a Quant?

(noun) A financial analyst with strong programming and numerical skills; someone who develops models/systems to assist the activities of traders and risk managers. a.k.a. rocket scientist.

A cause and effect of Quants can be seen with the rise of exotic derivatives on Wall Street: such securities bring more Quants to the industry, who in turn create more such securitie themselves.

Category: C++ Quant

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Q&A: What exactly does a Quant do in real life?

A quant designs and implements financial models and systems for pricing, hedging and trading of instruments, such as stocks, bonds and options. Some common roles within I-Banks that require Quant skillsets are
  • Desk Quant: interact with traders (Front Office) directly, and give (trading) books an edge through different methods such as time-series analysis, and discovery of predictors/indicators. Stressful but rewarding. It's not uncommon to work 12 hours. It's also not uncommon to get a big fat 6-figure bonus. Some might even call it "Golden Handcuff".
  • Model Validating Quant: The equivalent of Quality Assurance (QA) in the software industry. Re-implements models to assure Front Office ones are correct. Works in the Middle Office - further away from the desks ( =smaller bonus).
  • Research Quant: the objective is to break new grounds. ie. research new approaches. Can be hard to justify their existence.
  • Quant Developer: a programmer who understands Quants' vocabulary / speaks their language. Usually works with a Quant to turn a model into working code. The pay (6+ figures) is incredible compared to what a programmer makes in other industries.

The biggest question is whether you want to join a group of other hard-core PhDs doing the tougher math problems, or join a more financial group where you will be talking business and providing them with your math edge. The latter involves far more selling, keeping up to date on financial trends, and describing quant results in the traders' vacabulary. ie. 'chained' to the trading desks.

Category: C++ Quant

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Q&A: I have a feeling that when headhunters talk about "trading desks"...

... they are referring to more than just the woodwork.

Answer : And you are right. They are referring to different areas on the trading floor at an investment bank. The trading floor is typically divided into groups known as "desks." Generally speaking, each desk specalizes in one particular type of investment product, and provides traders with access to instantaneous trade executions. Desks like Treasuries, High yield, Convertibles are quite common. It's not uncommon to have 30+ desks at some of the bigger firms.

Supporting cast at each desk include (starting from the bottom of the food chain ;-)

  • Clerks: on a good day, balance the books and/or track the trades. On a bad day, take messages, and/or go get coffee. Mostly a dead-end job.
  • Trading Assistants: more involved with the traders. More exposure to how the whole trading works.
  • Trading analysts: produce bond price or yield calculations within only a moment's notice. Deal mostly with books of trades and numbers. Make a living off number crunching/Quantitative skills.
  • Trading associates: hired directly to a desk. Move quickly to full-fledged trading positions if all goes well.
  • Traders: the king of the desk.

The level of stress, noise and pressure can be quite demanding at the desks (but you won't remember that when comes the bonus time ;-) For many, the ultimate objective of working at the desk is to become a full-fledged trader one day.

Category: C++ Quant

Your Turn!

 

Q&A: How is working at Hedge Funds different from working at Investment Banks?

I was $14k shy from taking up a job at a hedge fund, but from my research (before the interview) and inputs from friends working in that circle (and friends of friends), hedge funds tend to have very thin supporting cast (if any), quite unlike that at an investment bank. Supporting cast inlucde anything that ease the workload of traders, like performing ad hoc valuation, fixing Excel/VBA problems, trade entries and new recruits. Overall, It feels like working at a startup (like those back in the dotcom days), where you have to be ready to chip in in areas that are remotely related to your expertise. May be good if you like to learn the whole nine yards (ie. recent grads).

Most hedge funds are small, and the fund's strategy have a major influence on how things should be done. For example, a fund specialize in high frequency trading is most likely to have a much higher percentage of Ph.D. staff than a bank.

Category: C++ Quant

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RANT: What is a Quant? II

When people I meet at parties ask me what I do for a living, I tell them proudly (most of the time anyway), "I'm an Quantitative Analyst." In a heartbeat, they get that blank look on their face, "Ohhh. And what exactly is that?"

I don't know how one supposed to explain Quantitative Analysis in a short, concise manner, but I usually say something like "...through advanced mathematical and programmnig techniques, we try to model, analyze, and predict the markets...", most of the time it still leaves the person clueless.

Then I decide to try a different approach. I start the response with a joke: When Harry Truman and Tom Dewey faced off in the 1948 presidential elections, Dewey went to bed convinced he was the next president of the United States. He said to his wife, "Dear, tonight you'll be sleeping with the President of the United States." But when he awoke, he learned that Harry Truman had won. Mrs. Dewey said to her husband, "Tom, will I be going to Washington or is Mr. Truman coming here?"

I then continue: Mr Dewey analyzes and predicts elections, I analyze and predict the market. That tends to help me get past the blank look.

Category: C++ Quant > Random Walk

Category: C++ Quant

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Q&A: How is working at Hedge Funds different from working at Investment Banks? II

Investment Banks often run a variety of training programme to help extend employees' knowledge and develop work-related skills. In general they also encourage internal transfers among different groups/units, presenting great opportunities for better understanding of the big picture and best fit of skills & personal interests.

Decision by committee seems to dominate banks. What that implies is that some of your best ideas may never see daylight, you may have to give up credit to push an idea through, or even bend backwords from time to time. Advancement opportunities/leading roles do not come around as frequent as those at Hedge funds.

At Hedge funds, it's not uncommon for new hires to sink their teeth into very substantive work first day on the job. It's also not uncommon to be working shoulder-to-shoulder with some of the best known names on the Street. For the exact same reason (ie. leaner shops), they offer some of the best /fastest opportunities for advancement.

Category: C++ Quant

Your Turn!

 

Q&A: Why do I get the impression that Back Office positions get looked down upon a lot?

The short version is that Front office generates revenue. Middle office manages risks and resources. Back office administrates day-to-day operations. The long version is that ....

Front office is where the money and action are. Its main functions are pricing and trading (proprietary and customer), with major areas like sales, trading, deal-making and research. Most of the FO jobs are line positions (as opposed to staff positions) and offer the fastest advancement and most money.

In addition to manage the risk exposures by drawing on the resources of both the FO an BO, MO carries out pricing as well, with an focus on validating the FO/BO pricing models, and analysis. In fact, pricing is done in all three offices and a good pricing model in one office is often a poor one in another due to their own specific focus.

Back office carries out settlements, clearances, regulatory compliance, accounting, and other bookkeeping functions. Many of the BO jobs are staff positions and indistinguishable from similar jobs in other industries, therefore they are easier to get without prior financial experence (at the same time, easier to automate and outsource.)

Despite the spins headhunters typically put on, BO/MO to FO directly is slow (if not hard), even if you have the credentials and stomach to work the politics. The fastest way is the most direct way - to land a FO job at a less-prestigious place, or in a support role like desk developer. This is also a hedged move since even if you don't make it, you still earn or learn a lot along the way.

Category: C++ Quant

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Q&A: How can you tell a Quant from a Trader?

Two guys walk into a room and find a bag of cash under the table...

The first guy thinks: This is crazy. Anyone could walk in here and take this money.

The second guy says to himself: Cool. What's the worst thing that could happen if I just took this money?

Which guy is a Quant and which Trader?

The first guy is a Quant. By training he wouldn't think of taking the money if it wasn't compensation for hard labor and sweat. The second guy is a Trader. The situation is simply an opportunity with limited risks.

Category: C++ Quant > Random Walk

Category: C++ Quant

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Q&A: What does it mean to "have buy-side experience"?

Just like any street, Wall Street has two sides: the buy-side, and the sell-side. Firms typically are oriented to one side...

  • Sell-side firms underwrite securities and make secondary markets in stocks, bonds, derivatives, and a variety of other securities. They tend to be household names like Goldman Sachs, Bear Stearns, and Merrill Lynch, and have higher salaries (not without higher turnover as well). They also have proprietary traders to invest the firm's own capital. Faster cash turnover (partly due to taking on bigger risks) and tend to be more stressful.
  • Buy-side firms manage portfolios on behalf of clients for a fee. They include mutual funds, pension funds, hedge funds, and lots of different types of institutions.

The buy-side needs the sell-side for execute trades. The sell-side needs the buy-side to trade securities (ie. participate in the secondary markets.) Both sides together make Wall Street.

Category: C++ Quant

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Q&A: What's the best way to go from an OO developer to...

...to a Quant developer?

It's the age-old Chicken and Egg dilemma: you want a job but you need experience, and you can't get experience without a job. It's probably more practical to change career path in multiple steps. For example,

If you are currently working in other industries, get a programming job on Wall Street first. Many financial programming jobs require no or minimal financial experience, so it shouldn't be to hard if you are good at what you do (ie. C++, Oracle). If you happen to work in a quantitative field (but not Finance related), make sure to show how these experience can be beneficial to your future employer - some people appreciate a fresh view from a different industry (ie. new blood).

If you are working on Wall Street already, get a job closer to Quants - one that gives you access to them. The key is to gain some exposure to how they work, what they need and how you can fit into that picture. Plus internal transfers are encouraged at most banks.

Getting certifications such as CFA & Series 7 can be of great help as well.

Category: C++ Quant

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