Quantitative Analyst – Job description
This article written by Akshit Gupta (ESSEC Business School, Master in Management, 2019-2022) presents the job description of a Quantitative Analyst.
Quantitative analysts or “quants” are professionals that work on designing, implementing, and analyzing algorithms based on mathematical or statistical models to help firms in taking financial decisions. With the advent of technology-based trading, the demand for quantitative analysts has seen a rise in the recent years. The analysts are generally employed at investment banks, hedge funds, asset management firms, brokerage firms, private equity firms, and data and information providers. They develop algorithms using programming knowledge of several languages like C++, Java, Matlab, Python, and R. Quantitative analysts possess strong knowledge of subjects like finance, mathematics, and statistics.
Quants create and apply financial models for derivative pricing, market prediction, portfolio analysis, and risk management. For example, quants develop pricing models for derivatives using numerical techniques for asset valuation (including Monte Carlo Methods and partial differential equation solvers) like the Black-Scholes-Merton model and more sophisticated models. Such models are used by traders and structurers in the trading rooms of investment banks. They design and develop decision-supporting analysis, tools and models that support profitable trading decisions. In risk management departments, quantitative models are used to assess the risks associated with the bank’s portfolios. Some popularly used techniques include Value-at-risk, stress testing and direct analysis of risky trades. Along with all this, quants are also responsible for regular back testing of the tools and models they develop, in order to maintain quality assurance and add improvements if any.
Types of Quantitative Analyst
The professionals working as quantitative analyst can be divided into two categories namely, front-office quantitative analysts and back/middle office quantitative analysts.
The front-office quants are employed at firms that are involved in sales and trading of financial securities which includes investment banks, asset management firms and hedge funds. The role of the analyst is to devise profitable strategies to trade in different financial securities by leveraging the use of algorithms to implement these investment strategies. They are also responsible for managing the risk of the firm’s investments by using quantitative models. With the advent of algorithm-based trading, the job of a quantitative analyst and a trader has mostly consolidated. The analysts in the front-office generally work on trading floors and deal with clients on a regular basis. The job of the front-office analysts is quite stressful as compared to the other quantitative analysts but on the upside, it provides them with better compensations.
Quantitative analysts in credit rating agencies and asset management firms develop quantitative models to predict the macroeconomic trends across different geographies.
Back-office and middle-office analysts
The analysts working in the back/middle office are generally employed by investment banks and asset management firms.
The analysts working in the back/middle office are primarily responsible to develop algorithms to validate the quantitative models developed by quants working in the front-office and to estimate the model risk.
After the financial crisis of 2008, the demand for risk managers has increased across all financial institutions. The quant analysts in the back/middle office also work as risk managers to manage the firm’s risk exposure.
Whom does a Quantitative Analyst work with?
A quantitative analyst depending on the type of office he/she is employed in, works in tandem with many internal and external stakeholders including:
- Institutional clients of the firm – A quantitative analyst working in the front office deals with the institutional clients (or even wealthy retail customers) of the firm to implement profit generating strategies on the client’s investments.
- Sales and Trading – A front office quantitative analyst also works with the sales and trading team of the firm to execute trades based on the quantitative models.
- Portfolio managers – A front office quantitative analyst also works with the portfolio managers of the firm to manage portfolios based on the quantitative models.
- Economists and Sector specialists – A back/middle office analyst developing models to predict the macroeconomic trends work with economists and sector specialists to gather information about specific sectors and economies
- Legal Compliance – A quantitative analyst also works with the legal compliance team of the firm to maintain a proper check over different rules and regulations and prevent legal challenges
- Equity researchers – The quantitative analyst developing models to predict the stock market developments also works with the equity researchers to obtain insights about financial and non-financial data about different companies
How much does a Quantitative Analyst earn?
The remuneration of a quantitative analyst depends on the type of role and organization he/she is working in. As of the writing of this article (2021), an entry level quantitative analyst working in a financial institution earns a median salary of €60,000 per year (source: Payscale). The analyst also avails bonuses and other monetary/non-monetary benefits depending on the firm he/she works at.
What training do you need to become a Quantitative Analyst?
An individual working as a quantitative analyst is expected to have a strong base in computer science, mathematics, and market finance. He/she should be able to understand and develop mathematical and statistical models using programming languages and possess knowledge of market finance. He or she must understand financial and economic trends and have strong research skills and interpersonal skills.
In France, a Grand Ecole diploma with a specialization in financial engineering, mathematics or market finance is highly recommended to get an entry level job as a quantitative analyst in a reputed bank or firm.
The Financial risk management (FRM) or Chartered Financial Analyst (CFA) certification provides a candidate with an edge over the other applicants while hunting for a job as a quantitative analyst.
In terms of technical skills, a quantitative analyst should be efficient in the use of programming languages like C++, Java, Matlab, Python, and R.
Relevance to the SimTrade course
The concepts about quantitative analysis can be learnt in the SimTrade Certificate:
- By taking the Exchange orders course, you will know more about the different type of orders that you can use to buy and sell assets in financial markets.
- By taking the Market information course, you will understand how information is incorporated into market prices and the associated concept of market efficiency.
- By launching the Sending an Order simulation, you will practice how financial markets really work and how to act in the market by sending orders.
- By launching the Efficient market simulation, you will practice how information is incorporated into market prices through the trading of market participants and grasp the concept of market efficiency.
About the author
Article written by Akshit Gupta (ESSEC Business School, Master in Management, 2019-2022).