Risk Management Basics
- Derivatives Basics
- Put-Call Parity
- Forwards vs Futures
- Spot Rate
- Forward Rate Formula
- Cash Settlement vs Physical Settlement
- Backwardation vs Contango
- Residual Risk
- Best Futures Books
- Futures vs Options
- What are Options in Finance?
- Exercise Price (Strike Price)
- In the Money
- Options Trading Strategies
- Call Options vs Put Options
- Options vs Warrants
- Writing Call Options
- Writing Put Options
- Gamma of an Option
- Options Trading Books
- International Option Exchanges
- Interest Rate Derivatives
- Interest Rate Swap
- Swap Rate
- Random vs Systematic ErrorÂ
- Equity Strategies
- Swaps in Finance
- Embedded Derivatives
- Commodity Derivatives
- Commodity Risk Management
- Managed Futures Strategy
- Top 7 Best Books on Derivatives
- Structured Finance Jobs
- Commodities Trading Books
- Best Commodities Books
- Fixed Income
- Equity Research vs Credit Research - Know the difference!
- Credit Analysis | What Credit Analyst Look for? 5 C's | Ratios
- Yield Curve Slope, Theory, Charts, Analysis (Complete Guide)
- Bond Pricing
- Coupon Bond
- Coupon Bond Formula
- Zero Coupon Bond
- Duration Formula
- Coupon Rate Formula
- Carrying Value of Bond
- Sinking Fund Formula
- Coupon Rate of a Bond
- Convertible Securities
- What are Treasury Bills?
- Repurchase Agreement
- Treasury Bills vs Bonds
- Coupon vs Yield
- Coupon Rate vs Interest Rate
- Credit Rating Process | A Complete Beginner's Guide
- Asset Backed Securities (RMBS, CMBS, CDOs)
- Loss Given Default - LGD | Examples, Formula, Calculation
- Top 7 Best Fixed Income Books
- ABS and MBS Index | Complete Beginner's Guide
- Top 10 Best Treasury Management Book
- Top 10 Best Credit Research Books
- Convexity of a Bond | Formula | Duration | Calculation
- Payment in Kind Bond | PIK Definition | Interest | Example
- Subordination Debt | Meaning | Example | Types | Risks
- Top 10 Best Books - Bonds Market, Bond Trading, Bond Investing
- Bonds vs Debentures
- Secured vs Unsecured Loan
- Bills of Exchange vs Promissory Note
- Bills of Exchange | Meaning | Examples | Top Features
- Promissory Notes
- Secured Loans
- Unsecured Loans
- Subordinated Debt
- Fallen Angel
- Bond Equivalent Yield Formula
- Junior Tranche
- Credit Analyst Interview Questions and Answers
- Debt Covenants | Bond Covenant Examples | Positive & Negative
- Credit Analyst Career
- Negative Covenants (Restrictive)
- Sinking Fund
- Bond Sinking Fund
- Negotiable Instruments
- Credit Spread
- Bond Pricing Formula
- Risk Management Careers
- Complete Beginner's Guide to CRM Exam
- How to Become a Quantitative Financial Analyst
- Risk Management Certifications and Salary
- Financial Engineering Career Guide: Program, Jobs, Salary
- Quantitative Analyst Salary | Skills | Trends | Top Employers
- Certificate in Quantitative Finance (CQF) Exam Guide
- Relative Risk Reduction Formula
When asked a quantitative financial analyst, what’s the only thing that sets this career apart from others, he mentioned that it’s the “ability to be okay with not knowing” and to “prepare oneself to know as much as s/he can”. So you can understand that this profession needs a person who is logical to the core as well as not bothered much about knowing more.
In this career, your job is to see through vast database and discover patterns so that you can reduce risk and increase profits. But before you ever decide to go for this career, you need to know whether this career is the right fit for you or not. At a basic level, to be able to thrive in this career, you need to be amazing at four specific subjects – mathematics, data science or software, finance and application development.
In this article, we will discuss how you can become a quantitative financial analyst. We will start with education and as we go along we will talk about job responsibilities, skill-sets required, compensation and finally we would offer you a guide to take the first steps to become a quantitative financial analyst.
Let’s get started.
- Quantitative Analyst Education Requirement
- Subjects You Need to Know as Quantitative Analyst
- Recommended Certifications for Quantitative Analysts
- Quantitative Analyst Job responsibilities
- Quantitative Analyst Skill-sets required
- Quantitative Analyst Salary / Compensation
- Your First Steps as a Quantitative Analyst
Quantitative Analyst Education Requirement
As already mentioned before you need to analyze and look through vast data to understand patterns, you need tools to come to conclusions.
So, right education would give you those tools to perform those tasks. Here’s what you should aim for –
- Bachelor’s degree in finance or math/science is a must.
- Masters Degree – If you want to become a quantitative financial analyst, it’s hard to get a job just by doing graduation. You need to do masters as well. For masters, you can do specializations in multiple fields. For example, you can get a master degree in quantitative finance or you can go for financial engineering. If you can’t avail these specializations, you can go for a related field to quants, i.e. a master degree in physics/statistics/math.
- Dual Programs – Your aim should be to find a dual program which offers both quantitative finance and applied mathematics. You can take a major and a minor. If you don’t get these two in the same program, you can go for major in quantitative finance and minor in economics. Even that will do.
- Computer Programming – Another option to take is to go for computer programming and do a course in investments. Many students who aim to become a quantitative financial analyst do that.
- Phd – You shouldn’t stop yourself just at master’s degree. Many employers hire only those applicants who have relevant doctoral degree. So consider doing a PhD while you work.
- Multiple Internships – There’s another option. Studying all these subjects would take some time. What you can do is to take up multiple internships to learn the basics of all the subjects at a practical level and pursue your study along. So that when you complete your study, you would have some practical experience to show forth to the reputed employers.
Subjects You Need to Know as Quantitative Analyst
There’re many subjects you need to study. And there’s no end to learning in this profession. But here’s a list of subjects you should know to be able to perform your duties as a quantitative financial analyst –
- Linear Algebra
- Financial Reporting
- Computer Programming
- Financial Markets
- Financial Modeling
- Financial Analysis
There’re many more to add. But these are the main subjects you need to get a good grip of.
Recommended Certifications for Quantitative Analysts
- This profession is the combination of multiple skills and investment is one of the most important parts. No certification can offer you so much knowledge and expertise than this CFA examinations.
- CFA provides you with overall knowledge of Corporate Finance, Accounting, Financial Analysis, Fixed Income, Derivatives, Alternatives Investments, Investment Management, Portfolio Analysis and more.
- CFA certification is considered to be Gold Standard within the Finance Industry.
- CQF is a part-time Financial Engineering program that can be completed as a single six-month program or split into 2-3 month levels
- It provides in-depth training in derivatives, IT, Quantitative Trading, Modeling validation of Risk Management, Insurance and more.
- CQF will give you an edge over others because it will help you learn the trade secrets and give you an experience of how quantitative finance analysts need to work in real-world environment.
Thus, if you want to do well, along with all the educational degree, consider doing both of these certifications as early as possible in your career.
Quantitative Analyst Job Responsibilities
job responsibilities may differ as per the employer and the policies of the company. But there’re certain things that wouldn’t change much. So here’s the list of job responsibilities that a quantitative financial analyst has to perform –
- Making modeling decisions: As a quantitative financial analyst, you need to make modeling decisions. To do that you need to research, analyze market trends, see statistics and finally make an informed decision.
- Develop quantitative models: Your job would be to develop and implement complex quantitative models, for example, models for trading equities. You also need to be able to develop analytical tools and software.
- Perform statistical analyses: Your job as a quantitative analyst is to perform daily/regularly statistical analyses like risk analytics, loan pricing, default risk modeling etc.
- Do coding: You need to do coding also. That means you need to have sound knowledge in computer programming. For example, you need to do coding tasks for pattern recognition or machine learning.
- Model specifications: You also need to take care of model specifications and apply several methods for data collection.
- Testing: Your job would also be to test new models, products and analytics program.
- Collaborate: You also need to collaborate with mathematicians, computer engineers and physicists to create optimal strategies. Collaboration is the heart of this job. You can’t do it independently.
- Consult: You also need to consult with people who’re in hardcore finance so that you can discuss trading strategies, market dynamics and trading system performance.
- Present & interpret: Your job is also to present and interpret data results to clients and senior management so that they can be helped in strategizing further.
These are the main job responsibilities of a quantitative finance analyst. So you can understand how complex the things are and to perform these job responsibilities well, you need to know almost all the subjects mentioned above.
Quantitative Analyst Skill-sets required
Let’s look at the skill-sets required for the quantitative analyst. Of course, it’s a tough job. But if you have the following skills, you would be able to handle all the job responsibilities with ease.
Art of applying scientific methods to finance:
This is not as similar as finance domain. This is tough. Because you need to figure out a way to apply scientific methods and software program to hardcore finance. You would be able to do that if you have vast knowledge in advanced mathematics, physics & quants and you also have an experience in applying these methods in vast data. Your job mainly is to find a pattern and analyze the pattern via these scientific methods. With practice and knowledge, you would be able to perform well.
- Financial Modeling
- Portfolio Theory
- Financial Analysis
Alpha generation & risk management:
As mentioned earlier, the main objective of this position is to ensure that the risk of the clients has been reduced and the generation of profits has been increased. So how would one do that? By understanding the investment market better. That’s the reason it’s good if you have a CFA certification. If you have a CFA, the understanding investment would be easier for you and you will be able to perform alpha generation and risk management effectively.
Risk Management Skills
- Knowledge of credit risk-products
- Equity & Interest rate derivatives
- Fixed Income
- Monte Carlo Techniques
Technical skills (computer programming):
There’re many quantitative financial analyst who have the depth of knowledge in technical skills/ computer programming. The most specifically, they have knowledge in Python and C++. By understanding and applying their technical skills they’re able to implement algorithmic trading strategies. Even they use these skills in complex funds like a hedge fund. So it’s mandatory to acquire computer programming skills to be able to thrive as a quantitative finance analyst.
- C++ (it’s utilized for high-frequency trading applications)
- Data Mining
- Java, .NET
- VBA Macros
- MatLab, SAS
- Object-oriented programming
- Big data modeling
Effective Communication skills:
You need to have effective communication (mostly verbal) to deal with the team and many team members who are from different domains and help you achieve the goal of the firm – client satisfaction. For communicating well, you need to know how to listen to the people who are hardcore in their domain and can help you in your work of understand the pattern of a vast algorithm.
- Independent research skill
- Problem solving skill
- Ability to work under pressure
Mathematical and Research skill:
This is of utmost importance, even more than knowledge of anything else. Many firms that need a quantitative finance analyst prefer to hire a research scientist than a finance guy simply because a research scientist has more knowledge and depth of research and can create, change and shift the algorithm as and when it would be required. So concentrate to develop the skill of research in scientific studies to be able to get considered for this profile.
- Linear algebra and differential equations
- Numerical linear algebra (NLA)
- Game Theory
- Calculus (differential, integral & stochastic)
- Probability & Statistics
Quantitative Analyst Salary / Compensation
There are many opportunities for quantitative financial analysts. But basically, if you’re QFA, you will be hired by hedge funds and investment banks. In some cases, you would also be able to find opportunities in securities, commodity trading, accounting companies, brokerage firms, commercial banks and financial consulting firms.
But the big question is what the range of compensation is? Here’s the deal. According to the PayScale, the median pay of New York Quantitative Financial Analysts was US $101,947 per annum.
In India, the amount is much lesser. It’s around the US $10,000 to $25,000 per annum for fresher.
According to Glassdoor, the median salary of Quantitative Financial Analyst was the US $106,575 per annum. The minimum was the US $63,000 per annum and the maximum was the US $155,000 per annum.
Your First Steps as a Quantitative Analyst
You would get surprised to know that schooling is not the first thing you should do to be able to become a good quantitative financial analyst.
The first step is to learn to think for yourself. Yes, there will be people on whom you need to depend to get the work done, but if you think that you don’t agree with group-think, you need to go beyond the convention and break away. In this field, individual thinking is of utmost importance. Now, why do you believe it? Because it’s said by one of the top quantitative financial analyst in the world, Mr. Micah Spruill, Co-Founder of Aurora Investment Advisors.
The second most important thing to consider according to Mr. Spruill is to take a scientific approach in any problem solving you’re involved with. Without a scientific approach, you won’t be able to view problems with fresh perspectives and thus, the solution you would give won’t stand out.
Once you are confident about the above two, Mr. Spruill suggests that you need to have a little bit of eustress (healthy stress) to keep you going; otherwise, you may end up being an overconfident snob.
So take these things into account and go for great education and certification. The future of quantitative financial analyst has no bounds.