Finance for Physicists
This page arose because I am often asked for advice and suggestions about how to prepare for, and get a job on Wall Street as a quantitative analyst. Everything here is subjective and personal opinion, but I hope that you will find it useful. I've listed some educational resources, ways to start looking for jobs, and provided some links to differing perspectives on the way in which quantitative modeling has influenced the financial crisis.
What do physicists actually do on Wall Street?
|Here is a good article from the Dec 1999 issue of The Industrial Physicist magazine, which describes the impact physicists are having on Wall Street (bear in mind that it was written well before the credit crunch):|
Risky business on Wall Street?
There is no doubt that physicists and "quants" make a real difference to the way in which Wall Street works in the 21st century. Read more about the trends and the dangers ... some of which turned out to be rather prophetic. Or did they? Are physicist quants really to blame for causing the global systemic crisis that emerged on the public's radar screen during 2008? Here is a different viewpoint , describing the problems and counter-productive incentives inherent in the current financial system. You can read an industry perspective on this here, focused more on the need for consumers of financial products to understand what they are buying. The curious thing about the role of physicists is that although they are educated to model nature, their role on Wall St. is primarily to calculate using descriptions of markets devised by financial economists. Such models are based on assumptions that have been overly-simplified to make them analytically tractable, as described in this article. Physicists' attempts to re-examine financial markets can be followed at the quantitative finance archive, launched in Dec. 2008.
During 2006, a special workshop was held on New Directions for Understanding Systemic Risk, organized under the auspices of Timothy Geithner (presently US Secretary of the Treasury) at the New York Federal Reserve and the National Academy of Sciences. The workshop highlighted the lack of preparedness of the global financial system for dealing with systemic risk, and showed clearly the need for a scientific, complexity-based assessment of the problem. At the workshop, the beginnings of research in this direction were presented, and you can read a perspective on that in a summary "Ecology for Bankers" written by Robert May, Simon Levin and George Sugihara. The workshop report is in the public domain and makes interesting reading: it can be downloaded for free or read online from the National Academies Press website.
Physics with finance at the University of Illinois at Urbana-Champaign
In order to provide a cheap and easy way for physics students at my home institution to become knowledgeable in finance, I created a course option that yields a Masters in Finance for Physics students. Students registered for the University of Illinois Physics Ph.D can be enrolled in the Masters in Finance program, and receive credit for their physics courses. In other words, you can get a Masters in Finance for relatively little extra work. This is highly recommended for students contemplating a career as a quant on Wall Street. Unfortunately, this option has been discontinued at the time of writing (2008).
Courses at other universities
There are many courses offered in computational finance at academic institutions. A partial list is given in this article from the July 1999 issue of RISK magazine. They offer useful training, of course, but if you are thinking of taking one of these programs, I suggest that you bear in mind the cost, the opportunity cost, and the fact that many of the physicists currently working on Wall Street are self-trained and apparently able to do their jobs.
Job hunting on Wall Street
To get a job on Wall St., it is essential to be well-prepared and knowledgeable about financial derivatives. The days are over when you could get in with no knowledge and expect that your physics Ph.D would be enough. A useful qualification is to do a Masters of Finance course, if your institution permits it. This may not go far enough however, and more advanced reading should be done.
A fun place to start is the ingenious Comix series, from the trade magazine Derivatives Strategy.
It is also worth doing a summer internship at one of the major investment banks. Since entrepreneurial spirit is one of the qualities that they prize, I will let you figure out how to arrange that ...
If you are contemplating a career in quantitative finance, you should know something about the business, and something about the technical aspects of derivative securities. Here are some recommended books on both these topics, starting with the technical books:
Here are some books that will give you a general background and are definitely worth reading if you intend to make this your career. I know of at least one talented individual who was somewhat dazzled by Wall St, but eventually realised that it was not what he was looking for in life, and returned to academia as a result.
Getting a job
The most efficient way to get a job is to contact a headhunter (see below). However, you might want to take a look at some other resources to get some idea of what is out there. This Google search will bring up many useful links.
You can also go through a headhunter. This Google search brings up many useful links.
Here is the contact information of headhunters with whom I or colleagues have had some contact in the past. I have no idea if these contacts are still active. Disclaimer: by providing these numbers below I am not making any recommendation about the quality of these individuals, and this list should not be considered any sort of endorsement of the services they provide.
Integrated Management Resources
51 West Elliot Rd., Ste 108
Tempe, AZ 85284
ph. (480) 460-4422
fax (480) 460-4424
551 Madison Avenue,
New York, New York 10022
ph. (212) 588-8883
(212) 300-6457 x107
Note: The company primarily works in the Chicago area.
Columbia Technology Corporation
Here are other headhunters whose numbers I have been given in the past, but I have had no personal contact with them. Disclaimer: by providing these numbers below I am not making any recommendation about the quality of these individuals, and this list should not be considered any sort of endorsement of the services they provide. I do not even know if all the numbers below are correct.
Beth Akins (212) 759-6400
Jaime Fields (212) 513-7777
Scott Gerson (212) 986-3344
Linda Greenberg (212) 286-9409
Robin Isacson (212) 254-4452
Jiin Kang (212) 947-7114
Deborah Kolb (818) 999-9891
Tom Morgan (212)513-7777 (ext 358)/ email@example.com
Steven Popper (212) 719-0101
Steve Newman (212) 687-9696
Bob Reed (212) 378-4830
Daniel Raz (212) 545-8511
Gail Tudisco (212) 980-1411
Dina Wehn (212) 675-3224
I would suggest that before you get in contact with a headhunter, have a resume prepared, and do the apppropriate readings in finance. Since most of the places will actually ask questions and trick questions related to options, one has to be both prepared and show them that you are serious and have undertaken the necessary steps. Also things usually progress rather quickly; you may be expected to go for an interview within two weeks.
Getting a job: Interviews
Interviews on Wall Street have two goals, primarily: (1) To see if you are bright and can think on your feet quickly and accurately; (2) To see if you have any background knowledge about finance. Goal (1) is usually accomplished with brainteaser questions that have no finance content. Goal (2) is usually accomplished by seeing if the candidate's proclaimed expertise survives a reality test. I once interviewed a candidate who claimed extensive familiarity with interest rate models but was unable to write down the stochastic process for the Hull-White model. If you are thinking of working on Wall Street, and do not know the answer to this simple question yourself, consider that the interest rate derivatives market is the largest in the world: for example, according to the US Treasury, the notional value of interest rate derivative securities held by US commercial banks at the end of the 4th quarter 2004 was $76 trillion. You might enjoy comparing this number with the US gross national product (GNP).
Excellent advice on how to give an interview is available here (along with lots of other useful advice), and this can also be used to the advantage of the interviewee.
Here is a website that has some good brain teasers to practice on: these brainteasers test your ability to construct and understand algorithms for challenging problems that are unfamiliar.
Here is a new book that contains specific interview advice for those being interviewed for quantitative positions on Wall Street:
Heard on the Street : Quantitative Questions from Wall
Street Job Interviews by Timothy Falcon Crack.
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Updated October 2013