Who is a Quant?
This article is also published on the author’s webpage, प्रtiक
This blog is an illustration of a very vast field which is a conglomerate of quantitative fields such as mathematics, physics, computer science and a very business-oriented area known as finance. In today’s era, most of you have come across various applications in this field, such as your credit score, risk management analysis for your portfolio, etc. Majorly people who are working in these areas are referred to as “Quants”. If you have watched the famous movie based on the 2008 financial crisis, “The Big Short”, it had a scene where Ryan Gosling points towards a fellow and says, “That’s my Quant” Here’s a gif of the scene.
Today, several major banks, trading firms, investment funds and other financial institutions hire quantitative analysts (aka quants). Most of these people have received higher education in the field of mathematics, physics, statistics, econometrics, computer science, or maybe even some other quantitative field. Some of these quants even have a PhD. One might think why would anyone need a PhD or Masters to get a job…
Well, the answer is not exactly based on the level of education the person has, but actually in the rigour, one needs to have to pursue the title. As most PhDs are deeply immersed in research for almost 3–5 years. During these years, they have been through all the ups and downs of experiences and skills one need and acquire to find results of the problem they are working on. That is exactly what a quant is trying to do at the financial institution. They are working on problems in financial industries with a quantitative approach.
Now, quantitative finance can be applied to various aspects of finance. Such as calculating risk on credit while lending money to an individual or an organization. Or to calculate the probabilities of the stock market going up and down. There are various mathematical models designed with many specifications to obtain the value they are looking for. Most of these models are proprietary, i.e., only the firm who designed them has can use them. Although, if anyone is interested in building one for themselves there are many references available. Let me give you some examples of quantitative finance techniques which are used by institutions and individuals.
- Moving average crossover strategy: Here a trader calculates the moving average (MA) (simple, weighted, exponential, etc.) with two different time frames and looks at the crossing patterns for both the MAs. Based on that, they decide when to enter into a trade and when to exit. Some experts and risk-takers might even modify them into a long-short strategy rather than a long-only. This is a good example of a momentum strategy.
- VAR analysis: This is a very important analysis primarily done in the risk management departments of the banks and financial institutions. Using this one can calculate the potential capital requirement upon the credited party defaulting on the loan. In simple terms, the amount of money a bank should have in order to manage the loss if the loan is not paid back by the individual or organisation.
- Data Analysis: This is probably the most important step for any quant primarily because if the data used to build the model is not right the entire model is most likely to be broken. This is the area where several statistical techniques are implemented to modify the raw data into useable.
Apart from these, there are several other techniques at present being used daily.
Today, several financial institutions hire quants for various purposes. Thus, quant is a very broader term to define. A risk analyst, trader, investor, market research, data analyst, hedge fund analyst, etc. have a common ground in the quantitative approach toward the market, the differentiating criterion is the mode of application.
This article is a brief overview of the quants in our society, there’s also a very good documentary available on YouTube which can be worth watching, here’s the link to it is below.
Hope you enjoyed reading the blog and if you have any suggestions, please use the comment section or write to me by email.
