I completed my PhD in Physics in Valencia with professor E. Oset. After that, I decided to leave the academic world and to work in a private company. My first job was as a progressive lens designer at INDO, where I worked for three years. After that, I decided to move to the banking sector, where I'm working now. I work as CVA quantitative analyst at BBVA. A quantitative analyst (“quant” from now on) is in charge of pricing exotic derivatives and giving hedging strategies to cover the market risks associated to them. I will try to briefly explain what is this about.
Derivatives are financial structures whose value depend on the behavior of one or more underlying variables (for instance, the revalorization of the shares of a company, an interest rate, a foreign exchange rate, a commodity, etc). In this sense, there are equity quants, FX quants, interest rate quants, credit quants, etc, depending on the underlying of the derivatives they are in charge of pricing. Derivatives can be used by the customers as a pure investment, or also as a way of covering some risks.
For example, let us consider a Japanese oil tanker producer who has made a deal with a British oil company. The Japanese company will deliver 2 oil tankers to the British company at a price of 40 million dollar each, The delivery date is two years later than the date in which the deal was done. That date will also be the date in which the British company will pay for the oil tankers. By making this deal, both companies have a risk which is not under their control. If the dollar-yen exchange rate goes down (that is, the dollar loses value in relation to the yen), the Japanese company can even lose money with this transaction because all their expenses to build the ships will be in yen. On the other hand, if the dollar appreciates with respect to the British pound, the British company can end up by paying a lot more than what they expected to pay. In order to cover this risk, the British company can go to a bank and ask for a product that gives them the right of exchanging pounds by dollars at a given rate in two years, if this rate is lower than the market rate at that time. In this way, they have transferred their risk to the bank. The role of the quant in the former example would be determining how much the bank has to charge the British company for giving them that right, and how to manage the money the bank will receive from the British company (depending on how the pound-dollar exchange rate behaves during the next 2 years) in order to have enough money at the end of the 2 years to pay to the British company.
The mathematical framework to price this products is based on stochastic calculus. It is a very dynamic field where new models are being developed every year. It is important to stress that the quants do not know how an asset price or a foreign exchange rate is going to behave, but they should know what to do to cover the risks depending on how this quantities behave. Although it seems a very different world from that of Physics, it is not so far since we use mathematical models to describe the nature of the underlying magnitudes. In fact, quants use the forward-Kolmogorov equation, Green's functions, Feynman-Kak theorem, MonteCarlo Method, …, as physicist do.
At BBVA, we are several quants with different background: physicists, engineers and mathematicians. It is quite important to have good grades to enter this kind of job. In any case, the main part of the selection process is a kind of “exam” to test your mathematical skills. Previous knowledge of the models we use is not compulsory (for a junior post).
The people in charge of following the strategy that we (the quants) calculate are called traders. A trader of exotic products must have also good technical skills, and you can also find physicists in a trading desk.
You can do this kind of job mainly in banks, but also in hedge funds or consultancy firms.
More details if you're interested in this post:
- Where should I send my CV?
Look at the companies' web pages, or see for instance: www.efinancialcareers.co.uk, www.quantfinancejobs.com;
- Where can I find more information?
There are lots of information on internet. See for instance: www.wilmott.com;
- Important qualities to get the job:
It is important to have good mathematical skills. Good grades make a good impression, but they will test your skills before hiring you.
- What is the typical salary level in the first 5 years?
The salary has a relevant variable component, depending on your performance and the performance of the division. In any case, I would say that this is a strong point of this kind of job when compared to other sectors.