How (if at all) is financial modeling important in trading (compared to M&A, etc.)?

Currently working on my MSc in Finance, have to pick classes for Fall semester. Pretty sure I want to take a trading track.

Anyways my options:

FNCE 6340 - SECURITY ANALYSIS AND FIRM VALUATION
FNCE 6350 - FINANCIAL INNOVATIONS
FNCE 6480 - FINANCIAL MODELING

The first two classes are the same time so I can take one or the other. Currently signed up for Financial Innovations, bc I assume it deals w/ fixed income securities, including zero coupon instruments, floating rate instruments, collateralized mortgage obligations, stripped mortgage-backed securities, Eurobonds, and interest rate and currency swaps, how these securities are priced in the marketplace and how they respond to changes in the interest rate. Only taking two total bc I work full time.

Other option is waiting for another prereq to open
FNCE 6300 Macroeconomics and Financial Markets ; which I know will eventually open bc its required for the degree but would rather knock out these advanced classes when I know they are available.

 

FNCE-6350-H01 FINANCIAL INNOVATIONS

FNCE-6382-001 FUTURES, OPTIONS, SWAPS: FINANCIAL DERIVATIVES

Seems reasonable enough.

I'll still have three other electives to take so should be alright...

Edit: well nm, I found that the latter course is a survey course for people who want conceptual knowledge on the subject; going to have to wait until the formal futures and options class is opened...

 

all desks running pricing models.

if you're talking fundamental valuation, it depends whether you're HG or HY. HY guys definitely become familiarized with the models - probably enough to change some of the input cells, but you won't be building stuff.

 

Like FX? Are most of the daily work tweaking existing models to accomodate for new products?

yesman:
all desks running pricing models.

if you're talking fundamental valuation, it depends whether you're HG or HY. HY guys definitely become familiarized with the models - probably enough to change some of the input cells, but you won't be building stuff.

 

Where would the interest rates desk fall?

yesman:
all desks running pricing models.

if you're talking fundamental valuation, it depends whether you're HG or HY. HY guys definitely become familiarized with the models - probably enough to change some of the input cells, but you won't be building stuff.

 
Best Response

The higher grade the bond, the less you're worried about company risk and the more you're worried about yield curve risk. In general:

-Everybody follows the curve

-Riskier the product, more time you spend researching the company (credit). First years on HY desks may spend all their time with research (desk, publishers, and strategists). HG desks are closer to 75% macro/curve, 25% credit (and the credit research is often relegated to looking at AAAs and AAs within industries, not companies specifically). As a jr person, you ususally work later/come in earlier to do admin stuff and tweak models

-Rates traders don't do credit analysis, neither does FX.

-All desks will sensitize their pricing to different yield curve movments. I don't know how FX works much beyond that.

-Most of the yield curve forecasts are done by rates researchers with more quant ability - they employ splines and higher level econometrics.

Point: If you want to do more financial/fundamental modeling stuff, get on a HY, or better yet, a loans desk. But you will not develop the modeling ability of researchers and IBDers.

 

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