Physics and a Career on Wall Street

1
Physics and a Career on Wall Street

• Evan Donoghue
• November 8, 2005
• PHYS 43411

2
History

• 1900 Louis Bachelier models price variations as
  a random walk (Brownian Motion)
• 1953 Harry Markowitz publishes work on
  mean-variance analysis (wins a Nobel Prize)
• Introduces use of quantitative analysis of stocks
• 1960s-1970s Benoit Mandelbrot (IBM) proposes
  new model of price variations based on fractal
  Brownian motion in multifractal time
• 1973 Economists (F. Black and M. Scholes)
  develop equation to calculate the value of
  options to buy a stock in the future at a
  specific price

3
What a Physics Career in Finance Entails

• Two Areas of Work
• 1) Attempting to predict the stock market to
  achieve superior returns
• 2) Use quantitative methods to assess and manage
  investment risk
• Quantitative Analysts or Quants
• Most common occupation for physicists in Wall
  Street

4
Quants

• Attempt to maintain constant performance as
  various assets in portfolio rise and fall
• Computationally model various (often
  interrelated) effects of stocks
• Operates on assumption that while stock market
  takes on random motion over long term, it does
  possess short term pockets of predictability

5
Why Take a Job in Finance?

• Money!
• Salaries can be three times those of average
  physicists1 (100,000)
• Challenging field with real world implications
• Can measure successes
• Rewarding progress is being made
• Advancement possible/encouraged

1. K. Kelly. Cracking Wall Street. Wired
News. Jul 1994.
6
Why Not Take a Job in Finance?

• Long hours
• Short deadlines
• High demand to get ahead of competition
• Few raises (though bonuses increase)
• Possible job instability
• If market goes bad, job is in jeopardy
• Unemployment is generally short-lived

7
What Skills Are Needed?

• General Problem Solving Skills
• Acquired through a general education in the
  sciences
• Programming Skills
• C/C and Numerical Analysis programming
• Knowledge of Finance

8
Studies in Finance

• Many universities offer degrees in Physics with
  Finance
• Can receive Masters in Finance with little
  additional work (often less than an extra year)
• Princeton, Stanford, University of Texas at
  Austin, MIT, University of Illinois at
  Urbana-Champaign, University of Chicago, Columbia
  University, Carnegie Mellon, University of
  Michigan, F.S.U., Purdue

9
Getting the Job

• Career Fairs
• Online searches
• QuantFinanceJobs.com
• Find contacts in the business

10
Getting the Job Interview

• Interview tests
• Can you think on your feet quickly?
• Brain-teasers
• (http//www.techinterview.org/index.html)
• Not finance related
• Are you knowledgeable about finance?
• Job specific questions

11
Conclusion

• Physicist are important to Wall Street
• Careers on Wall Street can be rewarding but are
  becoming increasingly popular and therefore
  harder to find
• Financial, programming, and physics background is
  necessary to distinguish yourself

12
Bibliography

• Finance for Physicists
• http//guava.physics.uiuc.edu/nigel/finance.html
  
• Kevin Kelly, " Cracking Wall Street," in Wired
  News, Issue 2.07. (July 1994).
• available from World Wide Web _at_
  http//www.wirednews.com/wired/archive/2.07/wall.s
  t_pr.html
• Jennifer Ouellette, Physicists Graduate from
  Wall Street, in The Industrial Physicist (Dec
  1999).
• Available from World Wide Web _at_
  http//www.aip.org/tip/pdf/wallst.pdf
• Leaving Physics
• http//www.poplarware.com/personal/lpqa.html