MS in Applied Mathematics for Finance one of the top programs in U.S.
By Yury Monakov
Published: Saturday, October 14, 2006
Quantitative analysts, or quant, have a daunting challenge. They design and implement mathematical models to price derivatives, to gauge risk or to predict market movements. A quant is not only expected to know about the underlying security such as options or credit derivatives, but is also expected to know how to mathematically predict their behavior and create a trading program than can capitalize on it. This involves having a deep knowledge of finance, mathematics and programming. A person who has interest in all three areas is a good candidate for a career in quantitative analysis or financial engineering.
Quantitative analysis has always been a niche career, but it has been getting more exposure recently. Large banks such as JPMorgan and UBS have begun to use more quantitative analysis in their projections and trading. In the past, financial institutions would use quants to gauge the company’s risk exposure. Now, quants can be found ‘close to the money,’ developing algorithmic trading applications. In particular, hedge funds may use quant exclusively in their investment decisions.
What is unique to quantitative analysis is that even though it is a relatively new field, this field will always be in demand. The field will broaden as computing power increases and as the traditional securities exchanges become fully electronic. Professor Dan Stefanica, director of the MS program at Baruch says, “There is new data every day, so there is always a demand-a greater demand every day to analyze that data.” “Eight years ago, there were only three programs in the U.S.-NYU, Columbia and Chicago. Today, there are 50 programs in the U.S. alone” he adds.
Historically, quants often had a background in physics, usually at a PhD level. One of the creators of the Black Scholes option pricing model, Fischer Black, earned his PhD from Harvard in applied mathematics. Today, a PhD in physics or mathematics is still one of the main routes people take to gain entry to a lucrative career in quantitative analysis. However, there are actually many more options for people who are interested in this career, particularly at Baruch.
Compared to other programs in the nation, Baruch’s MS in applied mathematics for finance is actually a more competitive and more intense program. The program was started in 2002 and for the past two years, Baruch has accepted only 25 percent of applicants, compared to UC Berkeley which accepted 38 percent. In November of 2003, before the program had graduated any students, Baruch was ranked 24th out of 38 programs in the U.S. and Canada.
The difference between an MBA and a masters in financial engineering is the career for which they prepare you. Quants fill a different niche than MBA students. An MBA can lead to many careers in finance. An MS, however, leads to a niche technical position, which is difficult, if not impossible for an MBA to fill. An important distinction is that one degree is not better than the other – each is geared toward different areas in finance.
Students that are mathematically inclined may wish to consider a career in quantitative analysis, as the median salary for a graduate of Baruch’s MS program is $80,000. A lot of graduates will then go on to study at the PhD level, which can pay at least $200,000.
For students that do well in mathematics and enjoy finance, this career is a viable option. Students that are good with programming languages such as C++, but are average in mathematics are also candidates for a career in quant. “You really need strength in at least one of those two areas” mentions Stefanica. Some of the requirements for admission to the MS program are: two calculus classes, linear algebra, probability, and at least one finance class.
Upcoming events for students and alumni:
Thursday, October 19 12:45-2:00 p.m. VC 6-215 Info session and reception for new financial engineering concentration in mathematics major.
Friday, October 20, 6:00-8:00 p.m. VC 14-280 Baruch College financial engineering MS program alumni association kick-off event.
For Undergrads interested in a career in quant:
To prepare for these careers, the Mathematics Department is offering a new concentration within the mathematics major, the mathematics of finance. This concentration is the best way for undergraduates to get a head start on their careers in quant, as this major “will prepare you above and beyond what the MS program requires for admission” said Dan Stefanica, director of the MS in applied mathematics for finance. The mathematics of finance concentration has a different set of electives than the other mathematics concentrations. Students should take the following five electives:
MTH 4110 Ordinary Differential Equations
MTH 4120 Introduction to Probability
MTH 4125 Stochastic Process
MTH 4135 Methods of Monte Carlo Simulation
MTH 4500 Introduction to Financial Mathematics
A mathematics minor will allow you to take some of these classes, but the major will fully prepare you for the MS program, and ultimately a career in quant.
(*) The Baruch MFE program was formerly known as the Applied Mathematics for Finance MS Program.