Can anyone give me a feel of the questions that major Investment Banks ask their Associates(PhD degrees).I have some interviews aligned up and am getting nervous,i really need help.If someone could say the actual questions they were asked when they were interviewed it might be useful as i would imagine they would ask similar if not same questions.Any books, references other than the routine Crack ,Hull ,Jarrow would help.I heard Rennie and Baxster is a good book for Stochatic Calculus?I am a student Genuinely asking for help so please don't fool around.

paying attention to detail is important, so post in the correct forum and don't use aligned when you mean lined

there are a number of old threads in the careers forum where interview questions are discussed,so maybe go through those threads to get a feel

Yes there are alot of useful threads in the 'Careers' ForumHere is something I made up mostly for science students thinking of FE--mostly in the early stages.Derman's 'My Life as a Quant' may give you a good picture but not so much specific questions you will be asked---that varies alot.Financial Engineer Skills2/3/06Types of jobs available (these are of course generalizations):Banks A big area in most large banks has been Interest Rate Models. However most of the model development has already been done by academics and bank staff. Thus much of the work in banks is to speed-up the pricing and calibration. Banks are also will have Foreign Exchange [FE] desks and Equity trading desks. FX trading [quantitative] research is basically involved with exotic options and uses a lot of pretty ‘cookbook’ pricing---i.e. mathematical and not a lot of financial theory. Skew and Kurtosis modeling and Calibration are important. Equity quantitative research is more Arbitrage and Portfolio related.Hedge Funds These tend to be Strategy and Arbitrage related---i.e. development of a ‘trading system’ that will spot mis-pricings and allow you to pick-off the profit before it disappears. An example of Arbitrage would be stocks---two companies agree to merge or you expect them to merge. Expect on of the stocks to rise and the other to fall at least in a short-term, so buy one, sell the other. The math is not generally as high a level as banks, but the statistical analysis is probably more important. A few are very stable and make a lot of money. Others have had a lot of trouble in mid-2005 [Convertible Bonds, Stock/Bond arbitrage] and reduced staff.Trading Firms Trade for themselves [not many left] or for clients. Range from big firms like Goldman, Merrill Lynch, to smaller firms like DRW.There are many jobs in NY and London but fewer in other cities. In cities like Chicago[land] there are positions but generally one position will open up at a time and you need to be at the right place at the right time and with the skills they are looking for. Since the shops are smaller than NY shops, they can choose from people with the exact skill they want. Software Shops There are a lot that develop software for all kinds of trading firms. Some create DLLs, some extensive pricing/risk packages for trading firms, some have developed software and they sell access to it. A number of consolidated and others will be bought out by other firms---some in the same field, some by banks.Skills: Currently a lot of math/physics grads. are employed by banks and hedge funds, but only a few are really developing models. Most are being used for programming and speeding-up the models a few ‘quants’ have already developed. While this programming may be an entrance to the firm, a danger is to become too good of a programmer that you can’t get beyond that job. More and more the ‘big’ models in themselves are in place. There will be more of a need of being able to price ‘one-off’ deals traders are asked about---i.e. some odd trade that the ‘big models’ can’t handle. Thus being able to price it from Excel, write a C++ program [and possibly put in a DLL], Mathematica, etc.. To ‘break-out’ you must have good people skills---being able to talk to traders, management, good but not quantitative programmers and sometimes clients on their level. Specific knowledge skills: Stochastic Calculus. Probability Theory. Numerical Methods---strong background. Finance. For options and derivatives, John Hull’s book a minimum level. Better to have a broader quantitative finance background at the level of Pliska or Follmer’s book. Musiela and Rutkowski is the ‘bible’ of derivatives---probably don’t need to read it all but be able to read the material when issues arise. Portfolio Theory is and will be very important. Is very computer intensive. Basic framework is Markowitz/Sharpe but the topic is much larger---Transaction costs are a big issue. Programming C++, Java, and DLLs [Excel]. C++ for the calculation engine, Java for the screen applications [though non-quant programmers may take care of that] and DLLs [Excel] so you can put applications on traders desks. DLLs maybe specialized applications or from a library of functions taken from the ‘big model’, e.g. DLLs that allow a trader to price interest rate products on his Excel spreadsheet but the DLLs in a ‘toolkit’ that is the same code used in the Java implemented system that is not as flexible as the DLL in Excel. Mathematica, Maple, etc. Most won’t have/buy packages you have in universities. Mathematica and a few others will be available for research, ‘one-off’ pricing, etc.. Statistical. Time Series analysis [Should know Box-Jenkins but may not be used in the job. ARCH, GARCH, etc.---you must know and have done some work with [is expected] but they may never have you use. Risk Management. Need to understand Value at Risk [VaR] and other and better risk management techniques and something about the software. A lot of former [even big name] quants are now in the risk management area. VaR and many others are considered to be too simplistic and allow management to think they have a good picture when things are really much more complicated. Should have some understanding of Basel regulations that are being promoted and adopted as standard for risk management. Warning: Many non-quantitative managers, traders and MBAs will ask questions about ‘buzz’ words----Box-Jenkins, VaR, GARCH, HJM models vrs. Hull-White, etc.---and your experience with, but that they have little or no knowledge about. The firms may not even use these models or do that type of research.Other products [there is a lot of overlap and question as to group some are in]:Credit Derivatives are big and expected to grown but can be very dangerous, see what happened to hedge funds in 2005 because of stock/bond Arbitrage [Ford and GM] and Convertible Bonds. There will be a lot of work on these but firms may become very wary of even though need the products more and more. Mortgage and Mortgage backed securities. Convertible Bonds. Really belongs in several areas but caused so much trouble in 2005 [though issues recognized in even 2004], that bears repeating. Should be big interest in.CDOs [Collateralized Debt Obligations] and other Structured Products.Fixed Income vrs. Interest Rate products [IRP]. Bonds, Convertibles, Structured products.Interest Rate Products. Caps, Floors, Swaps, Swaptions [including Bermuda]. Energy. Got a bad name after Enron, etc. Starting to come back to life. Commodities. Metal, grains, oil products, etc. Research tends to be more statistical than mathematical. Weather. Interest seems to come and go. With all the disasters of the last year [2005-2006] will probably become much more important. Insurance. Some important quantitative finance work is being done in Europe but not much in U.S. [note there is a respected U.S. journal ‘Insuarnce:Mathematics and Economics’]. At least U.S. insurance companies have not hired many finance quants and despite obvious tie-ins [at a minimum bond portfolios, stochastic processes, risk analysis], don’t seem to see the need. They tend to use more MBAs and Actuaries for their needs. Stock---Individual and Indexes. Most instruments are European and American options. Volatility Smile/Skew research is very important. A lot of ‘program trading’---a.k.a. similar to ‘Portfolio Insurance’ until 1987 crash made that a dirty word. Foreign Exchange. Heavy on Exotic Options that use a lot of mathematical knowledge [cookbook formulas] but not a lot of financial knowledge. Good entry area for math/physics people who have little finance training. Volatility Smile/Skew important area. A lot of people got into derivatives firm through math or physics backgrounds with little finance knowledge---many of them and even those who hired them thought it best to be a ‘blank slate’ in finance---that has changed. A lot of OR people are in finance esp. the universities—a lot came from Stanford that has a strong tie between the OR and Finance departments. Because of a combination of skill, that is a very good background. There is a careful balancing act in getting into a quant position. Firms will want very good C++ [and possibly other programming languages] skills. But if you are too good, you will tend to get stuck implementing ideas instead of developing models and other quant work. Many math/physics/etc. people get stuck at this level. Some will go for M.S. in MathFinance degrees before getting [so they can get] a job. Others will go for the degree after getting a job so they can advance. Those programs are very expensive and payoff [esp. after getting a job] is questionable. Probably best strategy is to be a very good programmer but even better prepared as a quant by: reading a lot of the best books in the field, reading the journals and attending seminars/conferences [conferences like Bachelier, American Finance Assoc., Econometric Society, etc. instead of RISK type].Here are some job posting sites. www.numa.com/cgi-bin/numa/bb-jobs.pl?F_FULL jobs.phds.org/jobs/aymen/ www.quantfinancejobs.com/ www.mathfinance.de Note: Job postings, with terms like the following whichwill not be what you might expect:Financial Analyst---usually for MBA types, alot of financial accounting and statement analysis Research Analyst---similar to Financial Analyst but may also involve looking at specific companies or industries; Similar to Stock Analyst. Portfolio Analyst---similar to Research Analyst but may be more focused on figuring out portfolio allocation for mutual funds, a company's portfolio or individual's portfolio. Ads in the Wall Street Journal or any paper, Financial Analysts Journal, Institutional Investor, etc. will be more of this type. This is a short description of jobs--and large banks with derivative trading in particular unless noted: Software Design in the programming dept.---most with M.S. degrees but a number with PhD degrees in math/physics/engineering. Most with little finance education or job experience in finance except the same type of jobs. Most work is putting applications together, i.e. screens that take inputs [screen or data base] and call valuation routines [where theory was developed by Quants [see below] and Quant Programmers [see below]] and transfer trades to a data base. PhD level programmers may work with the Quants and Quant Programmers when there are problems or bugs---i.e. use math skills to understand problems. Quant Programmers---Much of the theory of models has been developed and needs to be implemented into libraries and routines sped-up. Quant Programmeres are mostly PhDs in sciences who may be taking M.S. degrees in MathFinance at universites. Big thing now is taking code and putting into DLL libraries that Excel can call and allow traders to build spreadsheet that use same code as the 'big' systems but is more flexible for designing their own trading programs. Quants---Because of most theory being already developed, there are fewer of these in each bank. They still develop new theory but more and more develop pricing of exotic/custom trades that the systems can't handle, need to have available in hours and unusual enought that probably won't be put into the 'big' or even DLL systems. Desk Quants---While Quants will answer trader questions and sometime work with them, Desk Quants have gained complete trust of the traders and many spend a large amount of time on the desks with thetraders answering questions, helping out with trades/valuations and what is needed to improve applications or even trading themselves [full or part-time]. Software Developers---Within the firm are same as Programmers or Quant Programmers. However there are a number of firms I mentioned that just develop applications and put in systems [e.g. BARRA,Algorithimics, QRM, FEA, etc.]. They may hold training sessions for users, on the systems.Some good books.Derivatives Baxter & Rennie ‘Financial Calculus’ Brief but very good. Covers a lot of material in a very short book. Makes you fill in some gaps yourself---and here that is done well. Etheridge ‘A Course in Financial Calculus’ Patterned after Baxter/Rennie but more advanced. Musiela & Rutkowski ‘Martingale Methods in Financial Modeling’ Advanced and very complete. Probably more a reference. Hull ‘Options, Futures and Other Derivatives’ Probably best first book. Encyclopedic. Describes a lot of the derivative instruments. Shreve ‘Stochastic Calculus for Finance I:Binomial Asset Pricing Model’ Both volumes very good. A .pdf of original notes is free on Web.Shreve ‘Stochastic Calculus for Finance II:Continuous Time Model’Hunt, Philip / Kennedy, Joanne ‘Financial Derivatives in Theory and Practice’ Very good but expensive. Good book to read after getting a quant job.Interest Rate Models. Damiano Brigo, Fabio Mercurio ‘Interest Rate Models: Theory and Practice’ Weber & James ‘Interest Rate Modelling’ Very good and complete. There are many other good books but this is well written and encyclopedic. Finance (quantitative but broader than Derivatives) Pliska ‘Introduction to Mathematical Financeiscrete Time Models’ Follmer & Schied ‘Stochastic Finance’Statistics [Econometrics] Pindyck & Rubinfeld ‘Econometric Models & Economic Forecasting’ Very good but there are a number of other good books. Hamilton ‘Time Series Analysis’ Probability related to finance Neftic ‘An Introduction to the Mathematics of Financial Derivatives’ 2nd Ed. VERY well written; makes everything seem so obvious, you may not realized that you can’t duplicate what he did since you did not even have to think about anything—thus do exercises. Oksendal ‘Stochastic Differential Equations’ 5th Ed or later. Brief but very good. Karatzas & Shreve ‘Brownian Motion & Stochastic Calculus’ Advanced. More a reference. Steele ‘Stochastic Calculus & Financial Applications’Numerical Methods related to Finance Clewlow & Strickland ‘Implementing Derivative Models’ Tavella & Randall ‘Pricing Financial Instruments: Finite Difference’ Very good, but big focus on accuracy of methods. Wilmott, Dewynne & Howison ‘Option Pricing’ Look for Cambridge not Oxford Press edition---big price difference. Paul Glasserman ‘Monte Carlo Methods in Financial Engineering’Portfolio Markowitz ‘Portfolio Selection’ Old but classic. Markowitz ‘Mean-Variance Analysis in Portfolio Choice & Capital Markets’

jfuqua u were too lucid in ur description. Thanks 4 the help. i gained a lot.

This is the most complete and useful post I've ever seen for career type. Thanks jfuqua.

QuoteOriginally posted by: jfuqua Insurance. Some important quantitative finance work is being done in Europe but not much in U.S. [note there is a respected U.S. journal ‘Insuarnce:Mathematics and Economics’]. At least U.S. insurance companies have not hired many finance quants and despite obvious tie-ins [at a minimum bond portfolios, stochastic processes, risk analysis], don’t seem to see the need. They tend to use more MBAs and Actuaries for their needs.Can you please give a couple of references to the mentioned QF work in insurance?

I included a few articles as examples of various types. ‘Insurance:Mathematics and Economics’ has a lot more. http://www.elsevier.com/wps/find/journa ... scriptionI excluded Portfolio insurance, some re-insurance, etc.Aase Knut 'An Equilibrium Model of Catastrophe Insurance Futures Contracts' Research Symposium Proceedings9/95Aase Knut 'Premium in a Dynamic Model of Reinsurance Market' Scandinavian Acturial J. 93Albizzati M., J. Geman 'Interest Rate Risk Management of the Surrender Option in Life Insurance Policies' J. Risk & Insurance 94Artzner Philippe, Freddy Delbaen 'Default Risk Insurance & Incomplete Markets' MF 7/95Asmussen S., B. Hojgaard, M. Taksar 'Optimal Risk Control & Dividend Policies, Example of Excess-of-Loss Reinsurance for an Insurance Corporation' Finance & Stochastic V4 #3 2000Bacinello Anaa Rita 'Fair Valuation of a Guaranteed Life Insurance Participating Contract Embedding a Surrender Option' Bachelier conference 2002Beekman J., E. Shiu 'Stochastic Models for Bond Prices,Function Space Intergrals and Immunization Theory' 10/88 Insurance:Mathematics & EconomicsBorch K. 'Additive Insurance Premiums:Note' JofF 12/82Bouchard Bruno 'Stochastic Targets with Mixed Diffusion Processes & Viscosity Solutions' SP&A Oct/02<stochastics, super-replication, Math. finance & insurance>Boyle Phelim, I. Lee 'Deposit Insurance with Changing Volatilities:An Application of Exotic Options' J. Fin.Engin Sept/Dec 94Briys Eric, H. Louberge 'On the Theory of Rational Insurance Purchasing:Note' JofF 6/85Brooks R., H. Levy 'Portfolio Insuranceoes it Pay?' AF&OR6Campbell R. 'Demand for Life Insurance:An Application of the Economics of Uncertainity' JofF 12/80Canter M., J. Cole, R. Sandor 'Insurance Derivatives:A New Asset Class for the Capital Markets & a New Hedging Tool for the Insurance Industry' J. Derivatives Winter 96Cass D., G. Chichilnisky, H. Wu 'Individual Risk & Mutual Insurance' Econometrica 3/96

Wow, thanks a lot!Do you have a special interest in QF and insurance?Would be very intersting to know your thoughts on the QF beyond banks/derivatives.

Quote:phenomenologistMemberPosts: 58Joined: Nov 2003 Mon Feb 20, 06 12:54 PM Wow, thanks a lot!Do you have a special interest in QF and insurance?Would be very intersting to know your thoughts on the QF beyond banks/derivatives. ==================================================1. No just try to keep aware of the literature.Those were only references in my bibliography into 'C' and not including all the portfolio and corporate insurance references. 2. As I think I mentioned in a note, it appears that there is alot more academic interest in Euro [esp. Zurich], Canada [Waterloo] and U. of Iowa in insurance and QF [I'm using that to mean mathematical finance and financial economics]. Outside of derivatives, there is alot of work done with QF [I have to say academic because I have little idea how much is carried through to 'industry'] in real options and related risky investment, work done by OR people that does things very close [perhaps names just changed a bit] and derivatives people are interested in [see 'Management Science', 'Mathematics of Operations Research', etc.], journals like 'Journal of Mathematical Economics', 'Journal of Financial Economics', 'Journal of Banking and Finance' and alot of others deal with broader areas than derivatives [[in-]complete markets, utility theory, risk/reward, etc.], the econometric literature has alot of articles that become the tools used in derivatives research. Many of these are the same authors that appear in the literature of that write on derivatives and many of them teach the OR, BA/MA/PhD Economics and MBA and business school PhDs [finance, economics, decision science] who go into various industries [other than banks and hedge funds] and hopefully use the tools they learned for thinking in terms of derivatives research and apply them.