Tuesday, March 14, 2006

"On Becoming a Quant" by Mark Joshi

This was an interesting post that I found on a financial forum. For all of you who have harbored the fantasy of becomign a quant, here is a treatise on what it is like in the real world. Thanks to Mark Joshi for writing this.


What does a quant do?

A quant designs and implements mathematical models for the pricing
of derivatives.

What sorts of quants are there?

(1) Front office/desk quant
(2) Model validating quant
(3) Research quant
(4) Quant developer

A desk quant implements pricing models directly used by traders.
Main plusses close to the money and opportunities to move into trading.
Minuses can be stressful and depending on the outfit may not involve
much research.

A model validation quant independently implements pricing models
in order to check that front office models are correct. Plusses more
relaxed, less stressful. Minusses model validation teams can be uninspired
and far from the money.

Research quant tries to invent new pricing approaches and sometimes
carries out blue-sky research. Plusses it’s interesting and you learn a
lot more. Minusses sometimes hard to justify your existence.
Quant developer – a glorified programmer but well-paid and easy to
find a job.

All forms of quants spend a large amount (i.e. more than half) their
time programming. However, implementing new models is interesting
in itself. The standard programming approach is object-oriented C++.

A wannabe quant must learn C++.

In the UK standard sources for job adverts are www.jobserve.com
search under ”quant”, the FT appointments section on a Thursday,
and www.wilmott.com has a jobs board. A lot of adverts are from
recruitment consultants rather than from banks. It’s important to
realize that the job may not even exist – the consultant wants to get
decent candidates that he can then try to place them in banks. The
consultant gets a commission from the bank if he can place you. They
tend to have short attention spans. If you do well at the first couple of
interviews then they will work hard to get you a good job but if you
don’t they will quickly lose interest. Also, be aware their agenda is to
get a good commission rather than to help you so they will push you
at jobs on that basis.

In fact, going via a recruitment consultant is the standard way to
get a job. Quants are generally not hired as a part of the on campus
recruitment process but instead hired as they are needed by the team.
Because of this it’s not a great idea to start applying a long time before
you want to start. Obviously personal contacts should be exploited
as much as possible. Banks tend not to be into paying expenses for
interviews. One therefore needs to go to London or New York and
attempt to get as many interviews as possible as quickly as possible.
What should one learn? Standard books are

• Hull - Options future and other derivatives – comprehensive
but low level mathematically and can be frustrating for pure

• Baxter and Rennie – accessible introduction to martingale approach
but oriented towards theory rather than practicalitues

• Wilmott (Derivatives) – good on the PDE approach but not so
good on other approaches.

My book will be published in early 2003 and I like it, of course.
Stochastic calculus is useful but not as important as it at first appears.
Standard texts are Oksendal, and Karatzas and Shreve. It’s
hard to find the time to pick it up on the job so it’s worth learning in
advance. It’s also worth spending some time going over basic probability
theory – eg Chung’s books.

Interviewers tend to care more about understanding the basics well
than on knowing a lot. It’s also important to demonstrate genuine
interest in the field. Read the Economist and the FT or Wall Street
Journal comprehensively. It’s not unusual to ask basic calculus or analysis
questions e.g. what is the integral of log x. Asking for a derivation
of the Black-Scholes equation is very common too. They always ask
you to explain your thesis so be prepared to be able to do this.

Generally, a PhD (or almost a PhD) is a necessity to get a quant
job. I would advise against starting before it’s awarded as it tends to
be hard to get it done whilst doing a busy job.

The main challenge for a pure mathematician is to be able to get
one’s hands dirty and learning to be more focussed on getting numeric
results than on fancy theories. The main way to do this is to implement
pricing models for practice. If this doesn’t appeal you aren’t suited to
being a quant. There are quite a few ex-pure mathematicians working
in the city so it can certainly be done but there is some prejudice
towards applied maths and physics people.

How much does a quant earn? A quant with no experience will
generally get between 35 and 50k pounds. This will generally go up
fairly rapidly. Bonuses are generally a large component of total salary.
How hard does a quant work? This varies a lot. At RBS we get in
between 8.30 and 9 and go home around 6pm. The pressure varies.
Some of the American banks expect much longer hours. Wall St tends
to be more demanding than the City. In London 5 to 6 weeks holidays
is standard. In the US 2 to 3 is standard.

©2006 Marc Adler - All Rights Reserved


Anonymous said...

Looks like you want to be a quant.

Anonymous said...

Quant pay is very good.

Anonymous said...

this version of the article is out of date. The current version is on www.markjoshi.com

mark joshi