Wednesday, 2 January 2013

Cracking Quant-Finance Interviews

Quantitative finance or Mathematical finance is one of the most lucrative (read high-paying) job profiles offered at IITs. This post is meant to be useful to people who are targeting quant-finance jobs. Below post is based on my experience at IIT-Bombay's placements, but I think it will be useful to everyone in general.



What is Quantitative Finance ?
Naively speaking, it involves using mathematical models for profit maximization and risk minimization in financial markets. The word quantitative is used because instead of qualitatively ranking assets, you try to figure out actual numbers and hence make good decisions and thus great profits. Quants generally code up mathematical models. Thus extensive knowledge of Computer Science is needed.

Example: One example is Algorithmic Trading. In naive terms, you give the computer a set of conditions and if some condition holds true, you execute some trades (buy or sell orders).
  • Since you have a huge amount of market data about different assets available every second, you need to be able to store and retrieve the data efficiently. Knowledge of Databases helps us in managing the data efficiently.
  • Also sometimes, the profit-making conditions may hold true only for a fraction of a second and your hardware and software developed should be very fast so as to execute the trades within that fraction of the second. Thus your systems must be time-optimized at hardware and software levels. Knowledge in Algorithm Design, Compilers and Networks helps us tackle this problem.
Here is a presentation that Mr. Ashwin Rao (MD, Morgan Stanley India) gave on Quantitative Finance; it might give you more perspective.


Why Quantitative Finance ?
  • You might want to work as a quant simply because you love Mathematics and want to see it's application in the real-world financial markets.
  • Quants get paid truck-loads of money! This is because they help make Wallstreet banks and hedge-funds make huge profits. So money is a factor that might excite you to work as a quant. 
  • But, one thing to be noted is that the work hours are on the heavier side. So it turns out to be "more work for more money" policy. Yet the pay-per-hour ratio is well above other kinds of job profiles.
  • Also there are performance related bonuses and believe me, the bonuses can be as much as your base salary or even more. This is where the finance sector beats all other sectors, in general.


What are the skills needed for Quant Finance Jobs ?
  • CS major students have an edge over others for this profile. This is because of application of various CS based concepts on the job. Knowledge about Data Structures & Algorithms is essential.
  • You are expected to have a solid programming background in C/C++ or Java.
  • Generally you are not expected to have any prior knowledge/experience in finance.
  • Solid background in Math topics like Probability Theory, Linear Algebra and Calculus.


How to do well on Quant Interviews/Tests ?
You need to be very good in Probability theory, Combinatorics and general Math topics like Linear Algebra and Calculus. Also having idea about Data Structures and Algorithms is essential. I recommend reading/practicing from the following resources:

Probability / Combinatorics / Math:
Data Structures and Algorithms:
  • Introduction To Algorithms - By Cormen : If you have no idea about Data Structures and Algorithms, this book is an absolute must. It's considered to be a bible for Algorithms.
  • Algorithms For Interviews : This book has a huge number of algorithmic puzzles classified as per different algorithm design paradigms. I recommend practicing from it if you have time.
Puzzle Blogs:

Also, I will be posting questions asked by various quant firms that appeared at IITB's 2012 placements. I suggest you to keep checking my blog from time to time.


Which kind of firms offer Quant Finance jobs ?
Generally investment banks and hedge-funds. Some recruiters at IIT-Bombay offering quant-finance profiles:
  • Hedge Funds: WorldQuant, Tower Research Capital
  • Investment Banks: Goldman Sachs, Morgan Stanley, Deutsche Bank, CitiGroup, Credit Suisse

8 comments:

  1. "Quants get paid truck-loads of money! This is because they help make Wallstreet banks and hedge-funds make huge profits. So money is a factor that might excite you to work as a quant."

    This is a seriously naive statement. The quant salaries these days are, in many cases, about the same as the salaries that computer science people can get. Jobs are also harder to get for quants. The days of "boatloads" of money are in the past. They may return in the future, but that day has not arrived yet.

    The only accurate observation in this post is that CS people have an advantage because they know software engineering. But sometimes you need to know finance also, which is a tall order.

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  2. While I'm at it...

    It is unlikely that you will be able to answer the FAQ in Quantitative Finance without doing a graduate degree in finance.

    It is true that you can get a software job in finance without knowing finance. But you will not be a "quant" since you don't know anything about finance.

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  3. Can you give some links to PDFs of the books mentioned under probability/combinatorics?
    Or do you have to buy them ??

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  5. You can access the book from https://www.dropbox.com/sh/n6kroyymbblz7vm/Sq6_gVAZN_

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