Quants: Rocket Scientists on Wall Street

As financial securities become more and more complex, the demand for professionals who not only understand the complex mathematical models that price these securities but can enhance them to generate profits and reduce risks has also steadily grown. These people are called quantitative analysts, or “quantitative analysts” for short, or even the friendly “quantitative geeks” in colloquialism.

Because this job is challenging—it requires effective integration of mathematics, finance, and computer skills—quantitative analysts are in great demand and can earn very high salaries.In this article, we will learn about what they do, where they work, how much they earn, what knowledge they need, and whether this is suitable for your career.

What does a quantitative analyst do?

Quantitative analysts design and implement complex models that enable financial companies to price and trade securities. They are mainly employed by investment banks and hedge funds, but sometimes also by commercial banks, insurance companies, and management consulting companies; in addition to financial software and information providers.

Quantitative analysts who work directly with traders and provide them with pricing or trading tools are often referred to as “front-end” quantitative analysts.In the “backstage”, quantitative traders verify models, conduct research and develop new trading strategies. For banks and insurance companies, work focuses more on risk management rather than trading strategies. Front desk positions are usually more stressful and demanding, but are better compensated.

The high demand for Quanke is driven by multiple trends:

What does a quantitative analyst do?

Where do quantitative analysts work?

Quantitative analyst positions are almost entirely located in major financial centers with trading operations. In the United States, this will be New York and Chicago, as well as areas where hedge funds tend to gather, such as Boston, Massachusetts and Stamford, Connecticut.On the other side of the Atlantic, London dominates; in Asia, many quantitative analysts work in regional financial centers such as Hong Kong, Singapore, Tokyo and Sydney.

Although these cities are highly concentrated, quantitative analysts can be found all over the world-after all, many multinational companies analyze and/or trade complex securities, which creates a demand for the brainpower and ability of quantitative analysts. However, the problem faced by quantitative analysts working in Houston or San Francisco is that changing employers is likely to mean changing cities, and quantitative analysts working in Manhattan should be able to interview within a mile or two from their previous job. Find a job.

What does Quants earn?

Salaries in the financial sector are often very high, and quantitative analysis also conforms to this trend.It’s not uncommon to find a position with a published salary of $250,000 or more. When you add a bonus, the annual income of a quantitative analyst may exceed $500,000. As with most occupations, the key to getting a high-paying job is a resume full of experience, including experience working with well-known employers, and relying on recruitment companies and professional networks to find opportunities.

The highest paid positions are in hedge funds or other trading companies. Part of the salary depends on the company’s earnings, also known as profit and loss (P&L). At the other end of the salary level, entry-level quantitative positions may only earn $125,000 or $150,000, but such positions provide a fast learning curve and provide plenty of room for future responsibilities and salary growth.

In addition, some low-paying quantitative positions may be mainly quantitative developers, which is more like a software development position, and individuals do not need to have so much mathematical and financial expertise. A good quantitative developer can certainly make $250,000, but this is as high as a general salary plan.

Despite the high salary levels, some quantitative analysts do complain that they are “second-class citizens” on Wall Street and cannot earn the millions of dollars in salary required by top hedge fund managers or investment bankers. As you can see, financial success is always relative.

What quantitative analysts know

financial knowledge

Many financial securities, such as options and convertible bonds, are easy to understand conceptually but difficult to accurately model. Because of this hidden complexity, the skills that quantitative analysts value most are those related to mathematics and calculations, not those related to finance.What makes them valuable is the ability of quantitative analysts to construct complex problems, not their specific knowledge of the company or the market.

Quantitative analysts should understand the following mathematical concepts:

  • Calculus (including differentiation, integration and stochastic)
  • Linear Algebra and Differential Equations
  • Probability and Statistics

The main financial topics include:

Some quantitative analysts will focus on specific products, such as commodities, foreign exchange (Forex) or asset-backed securities.

Computer Skills

Software skills are also crucial to job performance. C++ is usually used in high-frequency trading applications, and offline statistical analysis will be performed in MATLAB, SAS, S-PLUS or similar packages. Pricing knowledge may also be embedded in trading tools created using Java, .NET, or VBA, and is usually integrated with Excel. Monte Carlo technology is essential.

Education and certification

Most companies are looking for at least a master’s degree or the best doctorate degree. In quantitative subjects such as mathematics, economics, finance or statistics. A master’s degree in financial engineering or computational finance is also an effective entry point for a quantitative career.Generally speaking, an MBA by itself is not enough to obtain a quant position, unless the applicant has strong math or calculation skills in addition to some solid experience in the real world.

Although most financial certifications, such as the Chartered Financial Analyst (CFA) title, may not add much value to the resume of a quasi-quantitative analyst, it may be a Certificate of Quantitative Finance (CQF)-you can obtain it globally through distance learning An intensive six-month course.

Suitable for your profession?

Obviously, you need to have the “right stuff” to become a quantitative analyst. It requires not only the knowledge and ability in the field of complex and abstract mathematics, but also the willingness to deal with seemingly insurmountable challenges-while facing considerable pressure-only a few people can do it.

But this does not mean that everyone who has the ability to become a quantitative analyst should become a quantitative analyst. The financial problems faced by quantitative analysts are very abstract and narrow. Unlike fundamental or qualitative analysts, quantitative analysts do not read annual reports, meet with management, visit operations, prepare for roadshows, or talk to shareholders. Most of their time is spent processing computer codes and numbers on the screen.

Individuals with strong analytical skills are valuable in many different financial fields, such as economic and financial analysis. Having to compete with the best and brightest quantitative analysts every day may not be the fastest way to advance, especially for those who have a wider range of skills and interests and desire to manage.

Another career issue that needs to be considered is many PhDs. Quanke from the academic environment found that they missed the research environment. When supporting the trading desk, you need to find a solution in days or hours, not months to research a problem. This usually prevents any breakthroughs in this area.

The success of quantitative analysis depends to a large extent on knowledge, talents, strengths, and dedication, rather than the ability to sell, network, or play politics. Quantitative analysts working in this field are there because they can do their jobs well-many people find this environment refreshing.

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