The practice of quantitative finance used to be the prerogative of global trading hubs such as New York or London. When major investment banks, hedge funds, or proprietary trading firms were expanding to Asia, they tended to send senior executives from New York or London to selected Asian cities to head quant teams, and staff the team with local junior hires—traditionally smart graduates fresh from college. The quant teams in Asia would look to deploy mathematical models developed and implemented in the U.S. or Europe to the Asian market. In other words, the Western world was the center of innovation in quantitative finance and finance in general, while Asia was passively adopting the products and models developed in the West.
However, the situation has changed drastically. The past decade has seen the global focus shifting toward the East, with the Asian market rapidly gaining liquidity, complexity, sophistication, and independence. As the market matures and with regional institutional investors playing increasingly dominant roles, financial institutions have adjusted their staffing strategy and are now looking to hire local talents with practical Asian market knowledge, experience, and contacts for the senior roles. Airlifting experts from the West is no longer seen as a viable way to form quant teams—the Asian market needs locally groomed talents with a good understanding of the domestic market and regional economy in order to perform effectively.
Differences Between the U.S. and Europe
So what are the differences between a quant role in the U.S. or Europe vs. Asia? The key distinguishing factor is the breadth of products and currencies coverage. Quant teams in the U.S. or Europe are highly specialized. These include exotic products teams responsible for highly structured deals, flow teams covering liquid securities and vanilla derivatives, high frequency quant trading teams covering electronic market making and trading, and short-term interest rate teams covering repo and money market, to name a few. On the contrary, an Asian quant team will need to function independently while covering all the scopes described above. One will need to be able to model exotic deals, and at the same time be capable of dealing with highly liquid flow products such as futures. As an example, an Asian quant might spend a typical working day determining the volga and vanna of a particular exotic deal using a two-factor model in the morning, discussing the wrong way risk and funding implications with the trading desk and corporate treasury in the afternoon, and preparing the pricing platform and database for a when-issue government bond that will start auctioning the next day in the evening.
The breadth of currency coverage is also significantly wider in Asia. A quant team in New York will be covering USD and CAD, whereas a team in London will be devoted to EUR and GBP. On top of these, there are Latin American and emerging market subdivisions, formed with quants having complementary skill sets and sitting alongside designated teams described above to cover specific markets. A single Asian quant team, in contrast, will need to cover at least 12 currencies, ranging from highly liquid (e.g., JPY or AUD) to the less liquid ones (e.g., VND). In fact, any standard-size trading desk in Asia will typically have exposure and trading activities in AUD, CNH, CNY, HKD, IDR, INR, JPY, KRW, MYR, NZD, SGD, and TWD. Each of these currencies has their own conventions and market preferences, and yet the Asian market on the whole is closely interlinked and possesses distinct regional flavors. The ability to multitask, to keep up-to-date with market development, and to compartmentalize one’s knowledge so that one can switch seamlessly between ongoing projects is vital for effective performance.
There are also the added challenges of managed currencies, transaction restrictions and government regulations. These give rise to the need to distinguish markets between onshore and offshore, deliverable and non-deliverable. How do we account for onshore and offshore CNY markets, and how are these two related to CNH? How are these markets, in principle of the same currency, inter-related, and how should the modeling approach be formulated? These are the challenges facing an Asian quant. Solutions are very often derived from the first principle, as the standard assumptions made in conventional quantitative finance modeling are not necessarily valid. Quants will need to liaise with the legal department, corporate treasury, and trading teams to keep up-to-date with the latest developments in governing policies and adapt their modeling approach accordingly. Locally trained quants with a good understanding of the domestic economies will possess the competitive advantage to tackle the problem more effectively.
Master of Quantitative Finance Programs: A Case Study of Singapore
In tandem with the growing demand of quants in Asia, many Asian universities have launched master degree programs to equip students with the necessary knowledge and skills in applying mathematical models and in computing. In Singapore, for example, there are at least five programs located in this tiny city state where two large sovereign wealth funds, GIC and Temasek Holdings, are incorporated.
One of the earliest to launch the Master of Financial Engineering (MFE) program in Singapore was Nanyang Technological University (NTU). The NTU MFE program is offered under her Nanyang Business School, and draws upon the faculty members in the schools of engineering to teach the more mathematically demanding courses and programming. The NTU MFE program includes a seven-week term at Carnegie Mellon University (CMU). Upon successful completion of the seven-week term, students are awarded a certificate in Computational Finance from CMU.
At the National University of Singapore (NUS), the Master of Science in Quantitative Finance (MQF) program is offered by the Department of Mathematics with the cooperation of the Department of Economics and the Department of Statistics & Applied Probability. The university-level Saw Centre for Quantitative Finance is entrusted with providing the necessary support to manage the program. In addition, the Risk Management Institute affiliated to NUS runs a separate MFE program.
The University of Chicago’s Singapore campus offers the Master of Science in Financial Mathematics. Curriculum and coursework are identical to the main Chicago campus. Simultaneously, students in Singapore and at the Stamford campus “electronically attend” lectures as they are presented live at the Chicago campus via real-time interactive video conferencing.
Beginning September 2012, the Lee Kong Chian School of Business at the Singapore Management University (SMU) begins to offer the Master of Science in Quantitative Finance jointly with Cass Business School at City University London. Students of this joint three-semester MQF program spend the four-month second semester at Cass Business School, where they study the same five core modules together with their fellow students of Cass. Upon successful completion of the program, SMU students are awarded a degree scroll jointly endorsed by the two universities.
One of the reasons that five similar programs are able to co-exist in Singapore is that many of the students are from overseas: China, India, Malaysia, Indonesia, and other countries in the region. It is also worth mentioning that the Monetary Authority of Singapore (MAS), the central bank of the city state, is actively grooming a critical mass of specialists in targeted fields such as risk management, quantitative finance, financial engineering, and actuarial science. MAS holds the policy view that these specialized skills are necessary to support the long-term growth of Singapore's financial services sector.
Besides Singapore, universities in Hong Kong, Australia, Taiwan, and Korea also offer specialized master’s programs in response to the trending demand in Asia for quants. The simple reason is that there is still ample room for growth in Asia, especially in the areas of derivatives trading, risk management, and quantitative hedge fund investments. Many Asian banks are acutely aware of the importance of risk management, and they are strategically positioning themselves to adopt the industry best practices, even beyond what the Basel committee has recommended.
What Is the Value of a Master Degree in Quantitative Finance?
A quantitative finance degree in Asia will not only grant you access to the major investment banks, hedge funds, and proprietary firms with Asia presence, but you will also be sought after by Asian institutions, which are vigorously building their institutional sales and trading teams to compete locally and globally. In addition, you will find employment at sovereign wealth funds, asset management groups, commercial banks, central banks, and government subsidiaries responsible for regulations and market monitoring. The Asian market on the whole is upbeat, sanguine, and filled with vitality. It continues to evolve and to grow in importance in a vibrant economic environment.
So what sort of qualities are Asian employers looking for? Standard quantitative finance training and the quintessential quant traits aside, employers are also looking for individuals displaying the aptitude to multitask, an avid interest in the financial market, and good communication skills. Unlike traditional quant roles, having a keen interest in the mathematical side of finance is not sufficient. As the Asian market continues to develop, new products are continually being introduced, and government policy and regulation continue to play a crucial role in shaping the market. Convince the interviewer that you can multitask by effectively handling an array of projects, that you are up-to-date with the general trend of Asian market development, and that you are an effective communicator and can be relied upon to conduct or support businesses in more than a dozen Asian countries, and you will get the opportunity to apply your mathematical skills to a breadth of products in one of the most exciting and rewarding markets for decades to come.
A version of this article appears in the QuantNet 2013-2014 International Guide to Programs in Financial Engineering
However, the situation has changed drastically. The past decade has seen the global focus shifting toward the East, with the Asian market rapidly gaining liquidity, complexity, sophistication, and independence. As the market matures and with regional institutional investors playing increasingly dominant roles, financial institutions have adjusted their staffing strategy and are now looking to hire local talents with practical Asian market knowledge, experience, and contacts for the senior roles. Airlifting experts from the West is no longer seen as a viable way to form quant teams—the Asian market needs locally groomed talents with a good understanding of the domestic market and regional economy in order to perform effectively.
Differences Between the U.S. and Europe
So what are the differences between a quant role in the U.S. or Europe vs. Asia? The key distinguishing factor is the breadth of products and currencies coverage. Quant teams in the U.S. or Europe are highly specialized. These include exotic products teams responsible for highly structured deals, flow teams covering liquid securities and vanilla derivatives, high frequency quant trading teams covering electronic market making and trading, and short-term interest rate teams covering repo and money market, to name a few. On the contrary, an Asian quant team will need to function independently while covering all the scopes described above. One will need to be able to model exotic deals, and at the same time be capable of dealing with highly liquid flow products such as futures. As an example, an Asian quant might spend a typical working day determining the volga and vanna of a particular exotic deal using a two-factor model in the morning, discussing the wrong way risk and funding implications with the trading desk and corporate treasury in the afternoon, and preparing the pricing platform and database for a when-issue government bond that will start auctioning the next day in the evening.
The breadth of currency coverage is also significantly wider in Asia. A quant team in New York will be covering USD and CAD, whereas a team in London will be devoted to EUR and GBP. On top of these, there are Latin American and emerging market subdivisions, formed with quants having complementary skill sets and sitting alongside designated teams described above to cover specific markets. A single Asian quant team, in contrast, will need to cover at least 12 currencies, ranging from highly liquid (e.g., JPY or AUD) to the less liquid ones (e.g., VND). In fact, any standard-size trading desk in Asia will typically have exposure and trading activities in AUD, CNH, CNY, HKD, IDR, INR, JPY, KRW, MYR, NZD, SGD, and TWD. Each of these currencies has their own conventions and market preferences, and yet the Asian market on the whole is closely interlinked and possesses distinct regional flavors. The ability to multitask, to keep up-to-date with market development, and to compartmentalize one’s knowledge so that one can switch seamlessly between ongoing projects is vital for effective performance.
There are also the added challenges of managed currencies, transaction restrictions and government regulations. These give rise to the need to distinguish markets between onshore and offshore, deliverable and non-deliverable. How do we account for onshore and offshore CNY markets, and how are these two related to CNH? How are these markets, in principle of the same currency, inter-related, and how should the modeling approach be formulated? These are the challenges facing an Asian quant. Solutions are very often derived from the first principle, as the standard assumptions made in conventional quantitative finance modeling are not necessarily valid. Quants will need to liaise with the legal department, corporate treasury, and trading teams to keep up-to-date with the latest developments in governing policies and adapt their modeling approach accordingly. Locally trained quants with a good understanding of the domestic economies will possess the competitive advantage to tackle the problem more effectively.
Master of Quantitative Finance Programs: A Case Study of Singapore
In tandem with the growing demand of quants in Asia, many Asian universities have launched master degree programs to equip students with the necessary knowledge and skills in applying mathematical models and in computing. In Singapore, for example, there are at least five programs located in this tiny city state where two large sovereign wealth funds, GIC and Temasek Holdings, are incorporated.
One of the earliest to launch the Master of Financial Engineering (MFE) program in Singapore was Nanyang Technological University (NTU). The NTU MFE program is offered under her Nanyang Business School, and draws upon the faculty members in the schools of engineering to teach the more mathematically demanding courses and programming. The NTU MFE program includes a seven-week term at Carnegie Mellon University (CMU). Upon successful completion of the seven-week term, students are awarded a certificate in Computational Finance from CMU.
At the National University of Singapore (NUS), the Master of Science in Quantitative Finance (MQF) program is offered by the Department of Mathematics with the cooperation of the Department of Economics and the Department of Statistics & Applied Probability. The university-level Saw Centre for Quantitative Finance is entrusted with providing the necessary support to manage the program. In addition, the Risk Management Institute affiliated to NUS runs a separate MFE program.
The University of Chicago’s Singapore campus offers the Master of Science in Financial Mathematics. Curriculum and coursework are identical to the main Chicago campus. Simultaneously, students in Singapore and at the Stamford campus “electronically attend” lectures as they are presented live at the Chicago campus via real-time interactive video conferencing.
Beginning September 2012, the Lee Kong Chian School of Business at the Singapore Management University (SMU) begins to offer the Master of Science in Quantitative Finance jointly with Cass Business School at City University London. Students of this joint three-semester MQF program spend the four-month second semester at Cass Business School, where they study the same five core modules together with their fellow students of Cass. Upon successful completion of the program, SMU students are awarded a degree scroll jointly endorsed by the two universities.
One of the reasons that five similar programs are able to co-exist in Singapore is that many of the students are from overseas: China, India, Malaysia, Indonesia, and other countries in the region. It is also worth mentioning that the Monetary Authority of Singapore (MAS), the central bank of the city state, is actively grooming a critical mass of specialists in targeted fields such as risk management, quantitative finance, financial engineering, and actuarial science. MAS holds the policy view that these specialized skills are necessary to support the long-term growth of Singapore's financial services sector.
Besides Singapore, universities in Hong Kong, Australia, Taiwan, and Korea also offer specialized master’s programs in response to the trending demand in Asia for quants. The simple reason is that there is still ample room for growth in Asia, especially in the areas of derivatives trading, risk management, and quantitative hedge fund investments. Many Asian banks are acutely aware of the importance of risk management, and they are strategically positioning themselves to adopt the industry best practices, even beyond what the Basel committee has recommended.
What Is the Value of a Master Degree in Quantitative Finance?
A quantitative finance degree in Asia will not only grant you access to the major investment banks, hedge funds, and proprietary firms with Asia presence, but you will also be sought after by Asian institutions, which are vigorously building their institutional sales and trading teams to compete locally and globally. In addition, you will find employment at sovereign wealth funds, asset management groups, commercial banks, central banks, and government subsidiaries responsible for regulations and market monitoring. The Asian market on the whole is upbeat, sanguine, and filled with vitality. It continues to evolve and to grow in importance in a vibrant economic environment.
So what sort of qualities are Asian employers looking for? Standard quantitative finance training and the quintessential quant traits aside, employers are also looking for individuals displaying the aptitude to multitask, an avid interest in the financial market, and good communication skills. Unlike traditional quant roles, having a keen interest in the mathematical side of finance is not sufficient. As the Asian market continues to develop, new products are continually being introduced, and government policy and regulation continue to play a crucial role in shaping the market. Convince the interviewer that you can multitask by effectively handling an array of projects, that you are up-to-date with the general trend of Asian market development, and that you are an effective communicator and can be relied upon to conduct or support businesses in more than a dozen Asian countries, and you will get the opportunity to apply your mathematical skills to a breadth of products in one of the most exciting and rewarding markets for decades to come.
Dr. Chyng Wen Tee is Assistant Professor of Quantitative Finance at Singapore Management University. Prior to joining the quantitative finance faculty, Dr. Tee spent three years as a quantitative analyst at the exotic interest rate trading desk at Morgan Stanley, London, and another three years as a desk strategist at the macro trading desk at Goldman Sachs, Hong Kong. He has a PhD from the University of Cambridge.
Dr. Christopher Ting is Associate Professor of Quantitative Finance and head of the quantitative finance faculty at Singapore Management University. He is also the academic director of the MSc in the Quantitative Finance Program. He has worked in the industry as a proprietary trader, and he teaches quantitative trading strategies in the Program. His research interests include high-frequency market microstructure, derivatives, and statistical arbitrage. He has a bachelor degree and a master’s degree from the University of Tokyo, and a PhD from the National University of Singapore.
A version of this article appears in the QuantNet 2013-2014 International Guide to Programs in Financial Engineering
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