QuantNet for Quant Finance
QuantNet is portal from education and recruiting in quant finance.
Example 1: the coming glut of financial engineers:
Financial trading has transformed over the past 30 years. In the early '80s, the people drawn to trading had a passion for markets, but few had the academic pedigree that's a prerequisite today. Many had only a high school education, but the markets were straightforward enough that a basic understanding of option theory and CAPM sufficed. When derivatives markets exploded in size, both in terms of equity trading and footloose liquid capital, complexity increased by an order of magnitude. Traders with a technical background who had been there from the start were able to capture "monopoly profits" since a failure to understand the technical nuances of the business was a barrier to entry for many prospective quants. Academics and engineers were in short supply, and therefore were hot commodities.
Today, however, the situation looks much different. Where advanced training in quantitative finance was once the exception, there is a growing army with advanced credentials. Black-Scholes and Ito's Lemma used to be hallmarks of an expert in quant finance; now they're part of the MBA curriculum and even some undergraduate math programs. Interest rate derivatives and the Gaussian copula for credit and mortgage derivatives were similarly standardized.[ Via BI/Clusterstock ]
Example 2: Understanding the Difference Between Risk Taking, Risk Management and Risk Control:
Since the full magnitude of the recent financial crisis has become clear, a great deal has been written about how risk management failed us. We hear of purported death knells for quantitative financial modeling, cries of "back-to-basics" and even reports of civil war brewing between the quants and the managers. Commentators highlight spectacular blow-ups and mind-bending tales of management ineffectiveness, outsized hubris and plain ineptitude. And then, of course, there is always the requisite finger pointing towards those institutions that, either through intellectual and strategic prowess or via sheer brazen luck, came out smelling of banknotes and roses. We all love the drama - it's the ultimate in reality TV and in the context of our self-obsessed culture, it really drives home the maxim that truth is stranger than fiction.
Now that the dust has settled, the question remains: was it risk management and quantitative modeling that failed the people, or was it the people who were supposed to be implementing risk management strategies and leveraging quantitative finance that failed the people?