Finding a job in finance
Emanuel Derman gives careers advice to those seeking a job in today’s finance markets.
You’ll have to have plenty of education, and intuition too
eigners) who want to succeed here must make funds can use quants to evaluate hedge funds.
cultural adaptations. Then there are the service providers. Ac-
So, what should you do about finding a job counting and consulting firms need model-savvy
in quantitative finance nowadays? staff to perform model audits. Risk management
If you want to be a classic 1980s model-builder software companies, such as Algorithmics, Barra,
for a trading desk, get a PhD in finance, physics Northfield, Numerix and SunGard, need pro-
or some other technical field. You’ll need that to grammer-quants. And everyone needs informa-
do research. But consolidation has killed many tion technologists and back-office staff who
of the classic positions during the past decade, understand models and can help organise a firm’s
and the remaining firms are less inclined to de- books and records.
velop models or publish papers about them. You I grew up believing, and still believe, that
need to be open-minded and take advantage of quantitative finance is in essence a multidiscipli-
the fact that as complex products have prolifer- nary enterprise. To be effective, you must learn
ated, quantitative skills have become increasingly finance, mathematics and programming. The lat-
valuable in wider domains. ter is critical because most trading innovations
First, think about risk management, every- involve software, and if you can program, you
one’s new categorical imperative. Investment can always add value. If you can’t, you have to
banks, commercial banks and hedge funds need be a lot smarter to earn your keep.
n 1985, when I joined Goldman Sachs, there risk managers, not only for their skill but also for More generally, learn how the financial
I were scores of places to work and you needed
no education in quantitative finance. You could
look for a position at Goldman, Salomon, First
the comfort they bring to investors and regula-
tors. Banks need risk monitors to intermediate
between risk managers and traders, and risk
world works. If you want to work in that world,
don’t pay attention only to academics, who
often have great misconceptions about how
Boston, Merrill Lynch, Morgan Stanley, Prudential, models are used. Listen to the people who live
Drexel, Shearson, Lehman, EF Hutton, DLJ, Smith by their models; go to practitioner seminars and
Barney, Paine Webber, Bankers Trust, Chase Man-
Quantitative finance industry conferences; Join the Professional Risk
hattan, JP Morgan, Chemical, Citibank and Manu- is in essence a Managers’ International Association, the Glob-
facturers Hanover, to name only a few among the al Assocaition of Risk Professionals or the In-
large respectable trading firms. All of them need-
multidisciplinary ternational Association of Financial Engineers;
ed people adept at bond maths or options pricing. enterprise. To be effective, read the Wall Street Journal and Risk; follow
In those days, not only couldn’t you get a markets, rates and spreads.
degree in financial engineering, but there was you must learn finance, And, importantly, seek to gain intuition.
actually no such field. Being a quant was ama- mathematics and Quantitative finance isn’t mathematics or chess;
teur heaven. You learned options theory your- it’s not a field for brilliant idiot savants; it’s an at-
self and made up your own models to fit new programming tempt to model the world of markets and peo-
products. No-one expected you to know Black- ple, and you need a little wisdom and experience
Scholes or CapM; being reasonably smart and monitors don’t need PhDs; they do need to love to know what can work.
flexible was enough. Now, 20 years later, it’s a markets and know what to worry about: bad When you do get a job, even if it’s not exactly
different landscape. marks, mis-specified contracts, uncertainty, risk, what you thought you were looking for, stick
First, many of the big firms have merged, been value-at-risk, illiquid positions, exotic options. with it for several years. Get to be an expert in
acquired or self-destructed. Second, education is Controllers too, who must mark to model the your firm that people around you can rely on.
now de rigeur. Academia has not only caught up large exotic and illiquid books at trading hous- Make the best of what you’ve found and then, if
with the practitioner world, but caters to it. There es, need analysts with a thorough understanding you move, move cautiously – there are idiot boss-
are scores of MSc and PhD programmes in quan- of derivatives and the models used to price them es everywhere. A resumé filled with short innings
titative finance, financial mathematics or finan- (Risk July 2001, pages 48–50). So do the margin doesn’t look that good. And when you leave,
cial engineering; if you can pay you can attend providers in prime brokerage. don’t tell your boss off; he may be interviewing
a conference or lecture series each week on Which brings me to alternative asset man- at the same place you just moved to.
everything from credit derivatives to statistical ar- agement and proprietary trading. As the num- I’m grateful to Bob Long, a principal at the
bitrage. Amateurs are out. ber of investment banks have shrunk, hedge search firm Denison Group, for his insights on
One thing has stayed constant: most quants funds have multiplied and grown in sophistica- the job market. ■
still come from abroad. A few weeks ago, I took tion. In the past, most of them focused on glob-
a poll and only one of the 70 students in my class al macro or distressed trading; now, many are Emanuel Derman is a professor at Columbia
at Columbia right now is American born and ed- quant shops, spawned from the proprietary University and a risk adviser to Prisma Capital
ucated. Americans want to be managers and have desks of investment banks. Hedge funds can use Partners. His book, My Life as a Quant, will be
outsourced their menial and quantitative tasks to quants to trade, manage risk and do performance published by Wiley in autumn 2004. You can
immigrants. Consequently, quants (that is, for- attribution. And, moving up a level, funds of reach him at firstname.lastname@example.org
XX RISK MAY 2004 ● WWW.RISK.NET