Quants or quantitative analysts are an integral part of the financial services industry. Stateside they are known as the “rocket scientists of Wall Street”. But while many of them are found in Manhattan, you can also find them in other financial centres all over the world including Hong Kong, Singapore, Tokyo and, of course, right here in Australia. These highly knowledgeable individuals are found in banks, hedge funds or wherever else firms need to analyse and trade complex securities.
Quantitative analysis requires a strong understanding of mathematics, finance and computer skills.
What does a quant do?
Simply put, quantitative analysts are employed to design and implement complicated models that allow financial firms to price and trade securities while minimising risk. They work directly with traders of all kinds, developing and providing trading and pricing tools.
The term quant broadly applies to quant researchers (“front office” quants) and developers (“back office” quants). The former tend to have the most understanding of mathematical models and financial markets, while the latter are primarily software developers that create strategies for the quantitative trading industry using software languages.
Quants are currently more in demand than ever due to the rapid growth of automated trading systems and hedge funds, and the increasing complexity of the securities market. As long as the finance industry keeps chasing the holy grail of market-neutral investment strategies, there will be a demand for quants.
What does a quant need to know?
Precise modelling is the key to a quant’s success. And while the concepts in which they deal (like convertibles and options) are fairly easy to understand, they can be extremely difficult to model accurately.
As such, quantitative analysts need to combine outstanding mathematical knowledge with computational skills. Although knowledge and understanding of financial markets is often advantageous, it’s not necessarily essential.
A quant will usually be expected to have:
A strong understanding of calculus
Linear algebra skills and the ability to balance differential equations
A strong grounding in probability and statistics
Conversant with portfolio theory
A knowledge of equity and interest rate derivatives
The ability to create credit-risk products
Fluency with C++, MATLAB, SAS, S-PLUS and Java computer languages
Where do quants work?
Most quants work for investment banks and hedge funds, as these are the places where they tend to be able to command the highest salaries. Most quants are able to command salaries in excess of $300,000. With the right experience and contacts, however, quants can make double this.
It’s not uncommon to find quants at work in commercial banks, big data companies, fintech companies, insurance companies (where they create risk management strategies) and even management consultancies.
Do I need to hire a quant for my business?
As we can see, all kinds of companies can benefit from the skills of a quantitative analyst. But are these highly knowledgeable and desirable professionals worth the six-figure price tag?
Of course, only you can ascertain if a quant (or a team of what are affectionately known as “quant geeks”) can save your company more than they cost. However, if you are thinking of integrating this discipline into your workforce, you may find that hiring a quant creates its own set of challenges.
For instance, because they tend to gravitate towards financial centres, nearly all quants in Australia are based in Sydney. As such, you may need to put together an extremely strong selling proposition to get them to relocate.
We can help
If you’re interested in finding out more about quantitative analysts, risk management, or any other aspect of your business and its finances, then get in touch with our financial experts. Find out how GoCardless can help you with ad hoc payments or recurring payments.