DERIVATIVES: PowerPoint Picture Book

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DERIVATIVES: PowerPoint Picture Book

  1. 1. Opportunities in Finance for PhD’s by Peter Carr, PhD Principal, Banc of America Securities
  2. 2. Introduction <ul><li>Please ask questions at any time </li></ul><ul><li>Here are some questions I’ll be answering: </li></ul><ul><ul><li>Who are the players? </li></ul></ul><ul><ul><li>What is finance? </li></ul></ul><ul><ul><li>When should you decide? </li></ul></ul><ul><ul><li>Where would you work? </li></ul></ul><ul><ul><li>Why go into finance? </li></ul></ul>
  3. 3. Some Terminology <ul><li>Quants </li></ul><ul><li>Wall Street </li></ul><ul><li>Commercial vs Investment Banking </li></ul><ul><li>Hedge Funds </li></ul><ul><li>Derivatives </li></ul>
  4. 4. Who Hires PhD’s? <ul><li>Banks hire quants to develop models and to check them. </li></ul><ul><li>Banks and hedge funds hire PhD’s to develop quantitative trading strategies. </li></ul><ul><li>Government agencies such as the Fed, FNMA, Freddie Mac, CFTC and the SEC hire PhD’s to do research and to audit models. </li></ul><ul><li>Software firms hire PhD’s to specify models. </li></ul>
  5. 5. Who are the Players? <ul><li>Quants </li></ul><ul><li>Traders </li></ul><ul><li>Structurers/Marketers </li></ul><ul><li>Developers </li></ul><ul><li>Risk Managers </li></ul><ul><li>Middle Office/Back Office </li></ul><ul><li>I bankers </li></ul><ul><li>Analysts </li></ul><ul><li>Strategists </li></ul>
  6. 6. Job Titles <ul><li>Assistant/Associate </li></ul><ul><li>Vice President </li></ul><ul><li>Principal/Senior Vice President </li></ul><ul><li>Managing Director/Partner </li></ul><ul><li>? </li></ul>
  7. 7. Why Go into Finance? <ul><li>Challenging multi-disciplinary problems. </li></ul><ul><li>Fast-paced competitive environment. </li></ul><ul><li>Enjoy interacting with people and computers. </li></ul><ul><li>As a new field, there is a lot of low hanging fruit. </li></ul><ul><li>Compensation is good, but hours are long and frustrations can be enormous. </li></ul><ul><li>You don’t have to wear a suit or skirt. </li></ul>
  8. 8. Where Would You Work? <ul><li>New York, London, and Tokyo are the largest financial centers. </li></ul><ul><li>In the USA, PhD’s also work in Chicago, LA, Atlanta, Charlotte, SF, Tulsa, and Houston. </li></ul><ul><li>Internationally, PhD’s ply their trade in Toronto, Paris, Frankfurt, Hong Kong, Singapore, and Sydney. </li></ul><ul><li>Travel is usually a small part of the job. </li></ul>
  9. 9. When Should You Decide? <ul><li>Forward contracting is rare for PhD’s. Companies usually have no need (no head count) or just one. </li></ul><ul><li>The interview process takes a few months and usually involves multiple visits. </li></ul><ul><li>If you have a strong locational preference for NY, London or Tokyo, you might consider moving there first. </li></ul><ul><li>Send your resume and cover letter 1-3 months before graduating. </li></ul>
  10. 10. Get a Job <ul><li>The qualities most in demand are: </li></ul><ul><ul><li>communication skills </li></ul></ul><ul><ul><li>analytical skills </li></ul></ul><ul><ul><li>computational skills. </li></ul></ul><ul><ul><li>cradle to grave capability. </li></ul></ul><ul><li>Most firms believe that the finance can be learned on the job. However, risk management is probably the largest growth area and likes financial/empirical skills. </li></ul>
  11. 11. Interviewing Skills <ul><li>Take charge </li></ul><ul><li>Bring your resume </li></ul><ul><li>Remember names </li></ul><ul><li>Brain teasers </li></ul><ul><li>Don’t discuss comp, hours, vacations and other perks until you have an offer. </li></ul>
  12. 12. Communication Skills <ul><li>Black Scholes is the language of options </li></ul><ul><li>A picture is worth a thousand words </li></ul><ul><li>Walk the walk and talk the talk </li></ul><ul><li>Tolerate ambiguity in others; don’t tolerate it in yourself. </li></ul>
  13. 13. Analytical Skills <ul><li>Probability Theory </li></ul><ul><li>PDE’s </li></ul><ul><li>Mathematical Maturity </li></ul><ul><li>Financial Maturity </li></ul>
  14. 14. Computational Skills <ul><li>(Quasi) Monte Carlo </li></ul><ul><li>Finite Differences/Trees </li></ul><ul><li>Root Finding </li></ul><ul><li>Splines </li></ul><ul><li>Fourier Methods </li></ul><ul><li>C/C++/Java, not Fortran,Pascal </li></ul><ul><li>Unix and NT are most widely used OS’s </li></ul>
  15. 15. Some Financial Instruments <ul><li>Bonds, Stocks, Commodities, FX </li></ul><ul><li>Forwards, Futures, Swaps </li></ul><ul><li>Vanilla Options </li></ul><ul><li>Exotic Options </li></ul><ul><li>Convertibles/Structured Notes </li></ul><ul><li>Credit Derivatives </li></ul>
  16. 16. Learning Derivatives Pricing <ul><li>Hull is usually too easy for PhD’s, yet too hard for most MBA’s - for non-quant Wall Streeters, it is just right. </li></ul><ul><li>I recommend reading the classics - Black Scholes 73, Merton 73, Black 76, Cox Ross Rubinstein 79, Heath Jarrow Morton 88, Dupire 94. </li></ul><ul><li>There are now many excellent books presenting the martingale approach to pricing. </li></ul><ul><li>The PDE approach is emphasized in Wilmott’s books. </li></ul>
  17. 17. A Quant’s Career Path <ul><li>First job is often computer intensive </li></ul><ul><li>With experience, quants often </li></ul><ul><ul><li>head quant groups </li></ul></ul><ul><ul><li>trade </li></ul></ul><ul><ul><li>structure </li></ul></ul><ul><ul><li>manage risk. </li></ul></ul><ul><li>With even more experience, some quants </li></ul><ul><ul><li>start hedge funds </li></ul></ul><ul><ul><li>manage departments. </li></ul></ul><ul><li>The fastest way to move up is to get dollars attached to your name. </li></ul>
  18. 18. Some Good Things to Know <ul><li>Wall Street research is not academic research. </li></ul><ul><li>All theories are wrong. </li></ul><ul><li>Uneducated does not mean dumb. </li></ul><ul><li>Location, location, location. </li></ul><ul><li>Buy low; sell high. </li></ul>

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