Opportunities in Finance for PhD’s

by Peter Carr, PhD

Principal, Banc of America Securities

Introduction

Please ask questions at any time Here 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 Terminology

Quants Wall Street Commercial vs Investment Banking Hedge Funds Derivatives

Who Hires PhD’s?

Banks hire quants to develop models and to check them. Banks and hedge funds hire PhD’s to develop quantitative

trading strategies. Government agencies such as the Fed, FNMA, Freddie

Mac, CFTC and the SEC hire PhD’s to do research and to audit models.

Software firms hire PhD’s to specify models.

Who are the Players?

Quants Traders Structurers/Marketers Developers Risk Managers Middle Office/Back Office I bankers Analysts Strategists

Job Titles

Assistant/Associate Vice President Principal/Senior Vice President Managing Director/Partner ?

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 and

frustrations can be enormous. You don’t have to wear a suit or skirt.

Where Would You Work?

New York, London, and Tokyo are the largest financial 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. Companies usually have no need (no head count) or just one.

The interview process takes a few months and usually involves multiple visits.

If you have a strong locational preference for NY, London or Tokyo, you might consider moving there first.

Send your resume and cover letter 1-3 months before graduating.

Get a Job

The 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 the job. However, risk management is probably the largest growth area and likes financial/empirical skills.

Interviewing Skills

Take charge Bring your resume Remember names Brain teasers Don’t discuss comp, hours, vacations and

other perks until you have an offer.

Communication Skills

Black Scholes is the language of options A picture is worth a thousand words Walk the walk and talk the talk Tolerate ambiguity in others; don’t tolerate it

in yourself.

Analytical Skills

Probability Theory PDE’s Mathematical Maturity Financial Maturity

Computational Skills

(Quasi) Monte Carlo Finite Differences/Trees Root Finding Splines Fourier Methods C/C++/Java, not Fortran,Pascal Unix and NT are most widely used OS’s

Some Financial Instruments

Bonds, Stocks, Commodities, FX Forwards, Futures, Swaps Vanilla Options Exotic Options Convertibles/Structured Notes Credit Derivatives

Learning Derivatives Pricing

Hull is usually too easy for PhD’s, yet too hard for most MBA’s - for non-quant Wall Streeters, it is just right.

I recommend reading the classics - Black Scholes 73, Merton 73, Black 76, Cox Ross Rubinstein 79, Heath Jarrow Morton 88, Dupire 94.

There are now many excellent books presenting the martingale approach to pricing.

The PDE approach is emphasized in Wilmott’s books.

A Quant’s Career Path

First job is often computer intensive With 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 to your name.

Some Good Things to Know

Wall Street research is not academic research.

All theories are wrong. Uneducated does not mean dumb. Location, location, location. Buy low; sell high.