Quantitative Analysis: Be a Rocket Scientist on Wall Street

If you like learning about numbers, you can put your math talent to work as a quantitative analyst. Quantitative analysts look for trends and patterns in order to develop sales forecasts and investment strategies. And the need for them is multiplying as fast as they can do the math.

Quants, as they are commonly called, generally work in two areas in the asset management industry: economics or security analysis.

The economics field has seen a big demand for these analysts in the past.

"I believe the industry will have a large appetite for quants going forward. However, I do not necessarily see that the rate of growth that we have experienced in the last 20 years will continue," says Eugene Flood. He is president and chief executive officer of an asset management firm.

"The demand for quantitative analysts in the finance industry has certainly grown over the last 20 years," says Flood.

He says the reason for the increase is that there have been many advances in financial theory and practice that require strong quantitative skills.

"The growth in the use of financial derivatives is a prime example of this," says Flood. "The wide use of computers and the availability of data is another reason that the use of quantitative analysis in finance has grown."

Economists use quantitative approaches to see where the economy is going. Flood says they look at many variables. These include the growth rate of the economy, changes in employment, productivity, money supply and interest rates.

The second area of work is security analysis.

"These quantitative analysts analyze industry and companies with a goal of forecasting the returns of the stocks and bonds of the companies," says Flood. "They perform detailed studies of the companies to understand their financial health, their competitive positions and their growth prospects."

"A quant analyst is a number cruncher," says Amitabh Arolkar. He is a quantitative analyst. "They are also known as rocket scientists on Wall Street."

Arolkar says there's been fast growth in the demand for quants. "[It's] because of the explosive growth in the derivatives market and a need for specialists who could understand these types of markets," he says.

"The demand for quants will always remain as long as technology gets more integrated with finance. The growth in a particular area in this field is in applied programming, wherein a thorough knowledge of the derivatives -- especially trading -- coupled with programming skills can land one a great job."

The association says quants have come a long way since that time when "quantitative approaches to finance were considered unconventional."

Flood says quantitative analysts can work in academia, consulting or within a financial institution.

"They can work...in the development of new products, in monitoring risks like credit risk and price risk and in checking the correctness of models that are used by corporate management information systems," he says.

Lars Ericson is the vice-president of derivatives application development with a bank. He feels the pool of jobs for quants has remained about the same, but opportunities will continue.

"Fully qualified quantitative analysts will always find work on Wall Street. However, it is a very competitive area in the sense that fully qualified really means having a PhD in a quantitative discipline [physics, math, statistics, finance, computer science] and some real business experience," says Ericson.

He says those with less than full qualifications will not find work as quantitative analysts. But they may find jobs as computer programmers in quantitative areas.

"Good introductory jobs include research analyst positions or assistant portfolio manager positions for the asset management industry," says Flood. He says students need to focus on the study of economics, finance, math and statistics, as well as computers.

Christian Zimmermann is an economics professor and senior analyst. He says there is currently a very high demand for economists. "They are usually hired before they finish their studies. The reason is that essentially, with all the new financial instruments, new blood with modern tools is needed," he says.

"I do not have numbers, but I see how easily the students get placed and how desperate employers are."

Ericson says an undergraduate degree in math or an area that requires quantitative methods is a good start.

"A more recent academic trend is to have master's programs in mathematical finance," he says. He also recommends having patience, good teamwork skills and a sincere interest in math.

Zimmermann suggests students achieve a master's degree in economics with a minor in financial economics.

Job prospects for quants will likely be much better for those who have a master's degree in economics. Zimmermann says it's a difficult, competitive field.

Flood agrees. "The industry is extremely competitive," he says. "To be successful, a person must be very driven, be prepared to work long hours and deal with tremendous pressure. As new entrants to this industry will quickly learn, the markets are not forgiving."

Zimmermann notes, however, that there are many areas to choose from once a person is experienced in economics.

"It is one of the most versatile professions. Economists generally can blend into many different duties. They can migrate from the trading room to epidemiology to development aid to running their business," he says.