IN PURSUIT OF THE FINANCIAL HOLY GRAILSo, you are considering of a career in finance and wondering if one of the new MS degrees in quantitative finance will be your ticket in? First of all think of what brought you to this path. People go into derivatives (which is after all what a great deal of quantitative finance is all about) for various reasons: insatiable intellectual curiosity, an appetite for gambling unappeased by Las Vegas roulette tables, or simply a healthy desire to make more money than anyone you know. For the right person this could be an exceptionally satisfying experience. If you have a keen appreciation for mathematics and information technology, a non-passing interest in the global economy and a certain entrepreneurial bend, this might be the perfect profession for you. If, however, the main thought crossing your mind is that of serious cash parked in an off-shore account in Cayman Islands and a collection of expensive sports cars, think long and hard before embarking on this journey. Doing what you enjoy is not a novel, if often forgotten, concept. One's work is supposed to be not just about the paycheck, but also about a mental and an emotional triumph. Too many of us forget this and suffer for years at jobs we loathe. One needs to learn to extract the necessary satisfaction (monetary and otherwise) from my work to allow them to enjoy the other aspects of life.There is a good reason greed is a deadly sin - it often leads to one's own destruction. Think of all the desperate souls who perished without a trace searching for gold in Alaska or diamonds in Africa. The thing is, there will never be a dearth of enthusiasts eager to risk their lives and savings looking for wealth and adventure in uncharted territories - more power to them. Without these enterprising individuals we would still be living in caves and eating raw meat with our bare hands. Still, there are direct and indirect ways of playing any gold rush and you need to choose the one which better suits your natural tendencies - you'll be happier in the long-run. Of course you could risk your health and fortune digging for gold yourself and maybe striking it rich someday, but you could also try making better mining equipment and selling it to the prospectors. (You could also open a brothel in a nearby town, but then you would be in the entertainment business.)Quantitative finance might sound like an idyllic field for mathematically-adept intellectuals, but it is also a bloody battlefield strewn with lost hopes and dreams, where pure science campaigns with or against pure greed. It is the ultimate ironic struggle between man's intellect and the only artificial force of nature in existence - the global financial markets. There will be power struggles and major disappointments. Friends stabbing you in the back and other such Machiavellian ploys. At the same time it is the modern Quest for the Holy Grail. The winner will have a sublime feeling of having thrashed an ethereal behemoth by the power of pure reason. This monster, however, is also responsible for that 30-year, fixed low interest rate mortgage, so we don't want to kill it, just subdue it.I am currently enrolled in the MS in Computational Finance (MSCF) at Carnegie Mellon University. When I applied to MSCF, I was specifically interested in derivatives. I researched many schools and the general feedback from the industry was that CMU was the best out there in preparing one for a career in this field - short perhaps of a Ph.D. in physics followed by an MBA in finance, but it also does not take an extra six years in academia. Of course the MSCF does not yet have the same brand recognition as a top MBA or the academic heft of a PhD, as it is a relatively new program but it is quickly gaining a foothold in the industry. It also prepares one for jobs for which MBAs and PhDs are often poorly suited.Generally MBAs are great on the business end, but rarely understand enough of the underlying mathematics or technology to communicate on the same level with risk managers and quants. Ph.D.s, on the other hand, often lack the people skills necessary to deal with the clients, traders and the upper management. The need for financial engineers arose specifically because the industry was short of ambidextrous professionals who could handle modeling, programming, structuring, trading and marketing. This is not to say that you would find yourself wearing all of these hats at once, but you should understand the technical details, even if you are on the business side, and be able to direct the development of new products.If this will be your first job in the industry, you will probably do quite a bit of programming. If this is not what you had in mind when you signed up, don't be discouraged. As you gain experience and move more onto the business side, you will do more marketing and trading and less coding and modeling, which will be done by incoming junior quants. The main point is that this job is not meant to be interchangeable with IT and requires a significantly wider set of skills, of which programming would be just one in your bag of tricks. A career in derivatives can be one of most intellectually challenging and enjoyable experiences for the right person, but the field is getting more complicated and competitive by the minute. The more you bring to the table, the more advantage you will have. I would recommend not shying away from the technical work, because now, more than ever, you really need to understand the technology behind the markets.If you wonder why a financial professional needs to know how to program at all, when programmers abound, let me walk you though a hypothetical situation: Lets say you are a prop trader on an exotics desk at a major hedge fund. While you were asleep, your subconscious mind was working overtime processing yesterday's market data and you have an epiphany at 6am in the shower about a certain trade, which could be very profitable if you can put it through before other traders catch on. You are pretty sure this has not been tried before and you want to test it out as soon as possible to beat everyone else to the punch (things move very quickly in global markets and the window of opportunity may be no longer than a few hours). While you are on your way to the office, you work the model out in your head and decide to develop a quick Monte Carlo simulation before committing millions of dollars of other people's money. All available programmers are either too busy with other projects, do not understand enough finance to be of any use right away or simply have not showed up yet for work. This is where your programming skills come in. You get in by 8am and code and test the model in an hour or so before the market opens. You put the trade into play and make a killing before the traders worldwide realize what happened. I know this is the most optimistic scenario possible and is of course an oversimplification of things, but you might as well argue why executives need to know how to use a word processor and email if they have secretaries. Again, the more tools you have at your fingertips the more effective you will be.Some aspiring financial engineers raise concerns about the profession being oversaturated with little demand for new entrants in the future. My guess is that the field of derivatives will not diminish and will only grow because financial risks always change and constantly require innovative financial instruments to deal with them. There is also another reason for my optimism - derivatives are an unquenchable source of potential money making opportunities for speculators, and speculators are the ones who drive the markets. Derivatives are also easy to create and their quantity is not limited by the quantity of underlying securities. As the volume and types of derivatives increase, so will the necessity for professionals who understand them. Even if you do not intend to become a speculator, an arbitrageur or a trader, there is enough interesting and lucrative work out there in developing and marketing financial products.Above all, it is extremely important that you are sincerely interested specifically in a career in quantitative finance. It is unlikely that the MSCF or a similar degree will prepare you for a job in investment banking or equity analysis - a prerequisite for these is usually an MBA from a top school. You should seriously consider why you want to study financial engineering, but if you have a sober understanding of the field and have the dedication and the background, such a program could be the best environment to acquire the necessary skills to successfully pursue this fascinating profession.Sergey Konovalenkoskonoval@andrew.cmu.edu

Just being (maybe overly) cynical here, but I thought that the production of new types of derivatives (financial innovation as they called it) was mainly driven by investment bankers in need for new high-commission instruments...welcome to the Financial Holy Grind !!!

I am sure you are right. Also insurance companies are in dire need of offloading their claims risks on others willing to absort those risks. This will likely lead to a rush of new insurance derivatives in the next few years. Also derivatives are not the only game in town. There are significant efforts being made in applying quantitative methods in portfolio management, market making, and prop trading. There are many reasons to be cynical right now. However, provided we are not headed for outright depression, the economy will eventually rebound and the people with the background in both business and technical aspects of finance will have a major advantage.You might not agree with my, perhaps, overly optimistic outlook, but you can hardly blame me for wanting to keep a positive attitude about my chosen profession.

Hi Konovs,I'm not pessimistic at all, and i really think that your point about mixing programming and biz and math is totally valid. The point i was trying to make is that if somebody is willing to pay you $100k a year for whatever reason, there's a good chance that you can be making much much more working on your own... working for somebody else can't be the GOAL...Peace,Hiboumalin.

The goal is to open up a dive shop in the Carribean ...

I'm too risk averse for diving but good luck with that!

QuoteOriginally posted by: Hiboumalinworking for somebody else can't be the GOAL...In the short run or in the long run?And something else.Diving is magic! And safe enough given the current technology. I ve seen on tv an old sponge diver paralysed from nitro for more than 30 years. When he was asked what he is currently missing, he responded with just 2 words, the sea!!

Hm... I think skiing 365 would be truly magic... screw fireballs, magic potions and eternal youth... just give me a snow covered landscape, for the rest of my life... *sigh*

Leaving craters at the bottom of mountain slopes has lost its appeal!