A quantitative analyst helps organizations assess risk and arrive at the right financial and business decisions, typically by applying a scientific approach to the visualization and analysis of financial data. Also known as “quants,” these professionals use advanced skills in mathematical and statistical analysis to develop complex predictive algorithms.
The crystal balls of the modern age, such algorithms are used by different entities to evaluate and minimize risk, identify secure and profitable investment options, assess the value of securities, trade in financial securities, and develop pricing models. (It probably sounds like magic to many, which calls to mind the famous quote by science fiction writer Arthur C. Clarke.)
Where do quantitative analysts work?
Quantitative analysts normally work at investment banks, hedge funds, asset management funds, insurance companies, private equity firms, commercial banks, software publishers, and consulting companies. Normally, the highest percentage of quants is concentrated in leading financial centres across the world.
In the U.S., New York and Chicago have a relatively high concentration of quantitative analysts. Roles for quantitative analysts include quantitative trader, financial analyst, quantitative developer, hedge fund manager, and quantitative researcher or modeler.
According to the U.S. Bureau of Labor Statistics, job opportunities for financial analysts are expected to grow by 5 percent over the period 2019 to 2029. This is faster than the average growth rate for all occupations.
It’s not surprising that demand for experienced and highly-skilled quantitative analysts is robust. In recent years, the market for automated trading software has witnessed significant growth. These electronic trading systems are powered by algorithms, which in turn are developed by quants.
Powerful algorithms enable trading entities to identify the best financial deals very fast, and thereby gain a competitive edge in the market. This is why quants are highly sought after in the trading world. The financial crisis of 2008 has made investment banks and other commercial and financial organizations aware of the importance of managing risk in such a way so as to reduce their exposure while still being able to generate profits.
A quantitative analyst has a variety of roles to choose from, depending on experience, aptitude, qualifications, and interests. He or she may work in areas such as financial research, development of quantitative models, trading, risk management, and options pricing.
Some quants perform general roles in quantitative analysis. Model validation is one such role. Other quants choose to specialize in specific roles, including risk management, investment management, algorithmic trading, statistical arbitrage, and degressive pricing. Quants with specialist knowledge and skills normally earn more than quantitative analysts who carry out general tasks.
Depending on where a quantitative analyst works, as well as his or her individual level of experience and particular skillset, job responsibilities may include any of the following:
Researching and analyzing large sets of data pertaining to market statistics and discerning trends
Performing daily statistical analyses on risk, pricing, and risk modeling
Executing daily statistical coding, such as pattern recognition and machine learning
Developing and implementing complex algorithms for equity trading
Creating analytics tools and software
Determining specifications for models and data collection methods
Monitoring, supporting, and modifying mathematical models that are currently in use
Performing model validation, which entails testing old and new quantitative models, analytics programs, and products in order to ascertain their validity
Creating and implementing tools for verification of results
Establishing software requirements specifications for developers
Working together with statisticians, mathematicians, physicists, and computer scientists to develop the most effective strategies
Offering advice on trading systems and strategies
Presenting and interpreting results of data analysis to senior management as well as the company’s clients
Keeping pace with change
Quantitative analysts need to have advanced development skills. Given the increasing popularity of electronic trading, more and more trading companies are looking to hire highly-skilled quants who can develop efficient quantitative algorithms.
Normally, quants are required to have advanced skills in an object-oriented language, such as C++, Python, or Java. A successful quantitative analys needs to stay up to date with these programming languages. Any candidate for this role should also plan to upgrade relevant technical skills, such as MATLAB, R, Advanced Excel, and VBA.
Training and employment background
For those aspiring to become quants, the most important skill is advanced mathematics. Competent quantitative analysts are usually math wizards. It’s necessary to have highly-developed skills in advanced mathematical concepts, such as linear algebra, calculus, differential equations, statistical analysis, and probability.
Recruiters normally require candidates to have a master’s degree or PhD in mathematics, physics, computer science, engineering, or a related subject. Leading funds tend to prefer PhDs in mathematical finance, probability, and machine learning. PhDs are experienced in independent research and don’t need constant supervision.
In addition to advanced mathematical and development skills, quantitative analysts need to develop an in-depth understanding of probability theory, options pricing, and financial laws and rules. Some recruiters may require experience with MATLAB, R, SQL, Excel, C#, VBA or .NET, big data modeling, and machine learning.
Successful quants are good at solving abstract problems, using logic, mathematical tools, and data analysis. Other necessary attributes include independent research capability, ability to work under pressure, good communication skills, and power of concentration.
There aren’t many certifications designed for quantitative analysts. At present, most recruiters look for advanced degrees in mathematics, statistics, engineering, and related subjects, solid development skills in at least one object-oriented language, as well as specific technical skills.
A credential that may be helpful for qualified professionals looking to gain some knowledge of quantitative finance operations in the real world is:
Certificate in Quantitative Finance (CQF)
This is actually an online part-time training course that aims to enable candidates to implement quantitative techniques in the real world. Topics covered include derivatives, machine learning, insurance, and quantitative trading.
The program is suitable for working professionals because delegates can access the online learning portal at their convenience. The CQF course comprises two three-month levels, which candidates have the option of completing independently if they wish. Delegates are awarded CQF- Level 1 certification after completing the first level of the program. Once delegates complete both levels, they achieve the full CQF certification.
Chartered Financial Analyst (CFA)
Before you decide to pursue the CFA, it’s best to ask your seniors at work, colleagues, and other quants whether this credential is worthwhile. CFA is designed for investment professionals. Job advertisements for quantitative analysts that mention CFA as a requirement are rare.
Details are available online.
Are you a quant in the making?
Though quantitative analysis is a very competitive and demanding career, it can also be stimulating and rewarding for professionals with the right aptitude, qualifications, and motivation.