Cheaper quants?

This article says that IBs are increasingly hiring cheaper quants and setting up their quant teams in regions like Eastern Europe and India. Well, from both an economic and a business perspective, it seems like the right thing to do. IT and quant talent are in high demand, and they're looking for people who can do the job...it doesn't necessarily mean you must be educated in top UK or US schools, where graduates have a high remuneration expectation. If you're hiring large numbers, especially fresh graduates, you can't really tell who's going to be the next Black or Derman, can you? Besides, by setting teams in these regions, they can be seen as expanding their investor base.

Quant is a sexy term, but it doesn't mean you create a model, implement it and the firm makes tons of money. Especially in an analyst role, you're involved in, typically, a small portion of model-building, perhaps working on a certain aspect of the model library. The stuff you learn in school are mostly textbook-based, and if you think you've managed to write VBA codes for all the pricing formulae in Hull, hopefully you are not too naive to think you'll be a successful quant.

For e.g., if you're pricing an exotic credit derivative, how do you model changing business cycles and credit levels? You make assumptions, a host of assumptions ranging from model-specific to macroeconomic ones. And with a short history to calibrate your model, your outputs and forecasts are, at best, wrong. I'm trying to say models are what they are, models. Being able to read the market is crucial, and how you make money is by coming up with the correct strategies, leveraging on your perception of future market movements.

I urge you to think about the finance intuition, the model assumptions and drawbacks, possible extensions and how your users, whether traders or external clients will use them, etc. Being a quant can very quickly become non-sexy, when you deal with the nitty-gritty stuff and spend weeks or months trying to decipher someone else's codes, when they have left for a higher position in another IB or a hedge fund.

Don't be afraid to voice out your ideas, but do plenty of research - while they will tell you that there are no stupid questions, opinions, etc...I'm sure you have on more than one occassion say to yourself...that's such a stupid question, what an idiot!

Week 5

It's week 5 already. Started a new project at another desk this week. Not what I expected, but it's still a rather demanding project, and I might have to learn a new programming language. Delphi, not VB or C++. Not sure if Delphi is a popular choice in the financial industry.

Day passes really quickly and I feel I haven't done much. Although we've been told that we're not directly competing against one another, we somehow feel that not all desks will have vacancies. We just had our mid-internship reviews and I think everyone did well. At least from the feedback we got.

The trading floor is simply amazing, wish I could spend some time with the traders, but everyone is incredibly busy. No chance of catching anyone, and you don't want to come across as being annoying, especially with the markets going down amid the credit and subprime woes.

5 more weeks to go...

Week 4

First desk rotation is over. Presented my project and I think it turned out alright. Had a couple of social events this week too, had a good time.

And I haven't stayed that late this week, I left at 6pm on two days. Finished my project on Thursday actually and had more time to talk to people and look at research reports on Friday.

Some of the interns are applying for other jobs at the same time, just in case they don't make the cut. I wonder if I should do the same...

Just got my pay check, and hardly been spending on anything. I guess that's why bankers are rich - they don't have time to spend. And the cafeteria is great, food is of high quality and it's subsidized by the firm. That leaves you with decent savings.

Btw, I can't blog about my project work other than mentioning it's on valuation/pricing. So contrary to what this blog is set up for, I have to say I was rather naive to think I could share with the public on my work without revealing my identity. Compliance is not something you'll want to take lightly, especially with the regulations in the financial industry. But I hope current and future MFE students and non-quants will still benefit from my postings. I'm happy to take any questions, but I guess the best place to start will be the Wilmott forum.

Week 3

The week passes so quickly that I hardly got much done. Apart from more coding and debugging, there were a few seminars and training sessions. Still haven't really settled in properly, and in a week's time I'll be moving on to another desk. You just got to work hard and fast. There's no point trying to impress people, because noone will be - everyone is smarter than you are.

I work 14 hours and eat at my desk. I take 4 coffee breaks a day. I hardly facebook or use IM anymore. I call NY (and receive calls from NY) more often than home. I spend more time on FT and Bloomberg than on my iPod.

<<<3 weeks back: I sleep 14 hours and eat 5 times a day. I drink fresh juices and milk only. I am always on facebook and MSN. I don't know the international calling code for US. I always tune into NBA.com, Soccernet and my iPod.

Oh, and on graduation night, I was in the office.

Week 2

A very different experience having a desk in a wide open floor plan. A VP and a Senior Director sit beside me. MDs walk around talking to people at all levels. Contrast this to my previous job where I was confined to my little enclosed cubicle, and my manager would call me (using his speaker phone) to march into his office for discussions.

Anyway, work has been quite interesting. Typical hours for me are from 8am to 9~10pm. Right now there's not much interaction with other research teams or sales and trading. Everyone is (acts) smart, confident and professional, and when they talk to clients they really sound like experts in their field. I'm quite impressed with the talent level in the organization.

Have to get used to waking up early. Haven't done much during this weekend, just trying to get some rest and spend time with my sister.

Days 3, 4 & 5: training and meeting with manager

Training ended today, overall, a good refresher and also understood some subtle points about certain instruments. Met up with my manager and we have scoped up an interesting pricing project. Lots of background reading though, which I'll probably start to flip through before Monday. Will be up in Leeds over the weekend.

Well, I still have to make a trip to Cambridge to visit a friend. Supposed to go last week but had farewell dinners with a few coursemates who have left London for good. I guess with my schedule it's gonna be quite hard to arrange a trip, besides, my Cambridge friend will be a father in 1 week! Congrats!

Apparently, the IBD interns will be starting work this Saturday instead of next Monday...well, I guess it's true that they'll be working very long hours...somewhere from 9am to 2am. Also, the equity research guys start at 7am before the traders come in.

Day 2: training

A much lighter day today. Had training on quant stuff, not hardcore math, but rather a crash course on financial instruments. Training will run through the end of the week before starting real work next Monday. Have yet to meet my line managers, but so far, all the senior people I've met are very friendly and down-to-earth. Even the 1st and 2nd year analysts are very helpful, offering advice and trying to make the transition easier for us. A very pleasant surprise indeed.

Day 1: network...network...network...

Met the rest of the quant interns...just a handful of us. Brilliant people. Basically today was just some formal firm intro stuff and a lot of networking...and networking. Most of the summer interns are from UK schools, with the rest coming from top US colleges (Harvard, MIT, Columbia, UPenn, UChicago, NYU, etc) and other European schools (Insead, IESE, ESSEC, etc). Those from UK are dominated by grads from Oxbridge, LSE and Imperial. Apparently competition is extremely intense this year...less than 3% of total applicants got offered a place. Wow...seems much more competitive than full-time positions.

A very tiring day...talking to people and remembering names are far more exhausting than exam revision. Anyway, that's the nature of the business - building relationships.

Calendar

Got my full internship calendar. I see a lot of social/networking events and technical and soft skills training. A couple more days to relax and do some preparation. Need to press my suits and iron my shirts/trousers, etc. Oh, and there are black tie events too, so I need to invest in a nice dinner jacket soon.

Some of my friends will be going to Amsterdam, Paris and NY for training for full-time positions. Others are on vacation in Prague, Vienna, Hvar, etc enjoying themselves. But I'm not complaining...I am anxious to start work...

After posting the link to my blog on GD, I've seen increased traffic...particularly from the States. I guess most of the people on GD are from US then. Btw, people are debating whether London has taken over NY as the world's no.1 financial center. Well, for one, London is getting more M&A deals and the London Stock Exchange is the leader for IPO markets (higher than NYSE and NASDAQ combined). Besides, seems like the average salary in London is about 10% higher than Wall St, but prices are soaring. In relative terms, could perhaps work out to be the same as NY or HK I assume.