Opportunities in Finance for PhD’s by Peter Carr, PhD Principal, Banc of America Securities
IntroductionPlease ask questions at any timeHere are some questions I’ll be answering: Who are the players? What is finance? When should you decide? Where would you work? Why go into finance?
Some TerminologyQuantsWall StreetCommercial vs Investment BankingHedge FundsDerivatives
Who Hires PhD’s?Banks hire quants to develop models and to check them.Banks and hedge funds hire PhD’s to develop quantitativetrading strategies.Government agencies such as the Fed, FNMA, FreddieMac, CFTC and the SEC hire PhD’s to do research and toaudit models.Software firms hire PhD’s to specify models.
Who are the Players?QuantsTradersStructurers/MarketersDevelopersRisk ManagersMiddle Office/Back OfficeI bankersAnalystsStrategists
Why Go into Finance?Challenging multi-disciplinary problems.Fast-paced competitive environment.Enjoy interacting with people and computers.As a new field, there is a lot of low hanging fruit.Compensation is good, but hours are long andfrustrations can be enormous.You don’t have to wear a suit or skirt.
Where Would You Work?New York, London, and Tokyo are the largestfinancial centers.In the USA, PhD’s also work in Chicago, LA, Atlanta,Charlotte, SF, Tulsa, and Houston.Internationally, PhD’s ply their trade in Toronto,Paris, Frankfurt, Hong Kong, Singapore, and Sydney.Travel is usually a small part of the job.
When Should You Decide?Forward contracting is rare for PhD’s. Companiesusually have no need (no head count) or just one.The interview process takes a few months andusually involves multiple visits.If you have a strong locational preference for NY,London or Tokyo, you might consider moving therefirst.Send your resume and cover letter 1-3 months beforegraduating.
Get a JobThe qualities most in demand are: communication skills analytical skills computational skills. cradle to grave capability.Most firms believe that the finance can be learned on thejob. However, risk management is probably the largestgrowth area and likes financial/empirical skills.
Interviewing SkillsTake chargeBring your resumeRemember namesBrain teasersDon’t discuss comp, hours, vacations andother perks until you have an offer.
Communication SkillsBlack Scholes is the language of optionsA picture is worth a thousand wordsWalk the walk and talk the talkTolerate ambiguity in others; don’t tolerate itin yourself.
Learning Derivatives PricingHull is usually too easy for PhD’s, yet too hard formost MBA’s - for non-quant Wall Streeters, it is justright.I recommend reading the classics - Black Scholes 73,Merton 73, Black 76, Cox Ross Rubinstein 79, HeathJarrow Morton 88, Dupire 94.There are now many excellent books presenting themartingale approach to pricing.The PDE approach is emphasized in Wilmott’s books.
A Quant’s Career PathFirst job is often computer intensiveWith experience, quants often head quant groups trade structure manage risk.With even more experience, some quants start hedge funds manage departments.The fastest way to move up is to get dollars attached toyour name.
Some Good Things to KnowWall Street research is not academicresearch.All theories are wrong.Uneducated does not mean dumb.Location, location, location.Buy low; sell high.