Level of Mathematics in Asset Management?
Hi guys,
I'm really starting to get nervous about the level of Maths required in AM. Obviously I'm not looking into getting into the really quantitative funds, but I would like to work in the industry, analysing markets, etc...
Those of you with experience, how much math is actually used and would a business major (basic accounting, no Finance or Economics) survive OK?
Are you leaning towards short-term trading or long-term investing?
Econ and Accounting are very important for the longer-term investments. You need enough math to get you through a strong Econ degree, but you do not need to know how to solve differential equations in your head.
There are some quantitative aspects to portfolio management when it comes to risk and different market scenarios particularly on the fixed income side- I used to work with a group that handled some of that stuff. However, if you can swing calculus, and you're good at accy, econ, and basic cause-and-effect, you can probably swing it as a fund manager.
I think everyone should take at least calc. Any more math than that and you are looking at being a quant. Traders don't need to know complex math, just quick math.
I am a math and finance student, so I am thinking from the other end of the spectrum (making sure I pick up the soft skills) but you need STATS first and foremost.
My problem is that Business in the UK is focused heavily on the Accounting aspect, with little or no Maths thrown in. I have no option to do other courses either (like in the US). My level of Maths does not extend past basic Stats, having done no Calc at school.
Well yeah, depending on the desk you are on it would be wise to know more math.
Math is one of those things that will never hurt you if you want to go into finance.
Once again depends on group/style. Behavioral/quantitative groups obviously require both programming and fairly advanced math/statistics, but even most traditional fundamental equity long-only guys sometimes have fairly advanced models as part of their risk management process and to help shape their macro views. Global macro guys even turn to pretty advanced models to exploit relative value themes. At this point, the only type of group that doesn't really use quant models of some sort that come to mind are probably PE guys and distressed/event-driven guys.
However, it's definitely possible to become a PM with a Finance/Business whatever degree, and having a quantitative background does not mean you are limited to quant research either--I got to meet a few star PMs this past summer that came from applied math/statistics backgrounds too. There really is the obsession on the site of not being pigeonholed--from my experience, the buyside affords you the opportunity to just find out what you like (and by extension what you're good at), and if you are really good at your job a slight switch in roles or tacking on added responsibility is not an issue at all.
As far as how much math is ideal, the more the better to be honest. I'm not saying that you have to be a math major, but at least understanding the basic premise of any sort of model that you run across is fairly essential to figuring out when the fuck it doesn't work. Plus, it's still an easy way to distinguish yourself from the hordes of vanilla Finance majors looking to break in. I was lucky and got DiffEq/Multivariable Calc out of the way in high school, so I had more freedom to explore in college the more advanced numerical stuff (optimization, numerical linear algebra, time series forecasting, etc.) and a lot of those techniques are just more tricks I can use on the job. For a business major, I'd really recommend an intermediate course in Statistics, and stuff up through linear algebra if you have the time.
It's definitely an issue: if you are mathematically illiterate, you lose an understanding of a fairly important part of the investment-management process that will screw you down the line at some point.
[edit: event-driven guys, especially merger arb, probably have ridiculous risk management strategies that are very quantitative in nature too since the use of derivatives to hedge out positions in arbitrage strategies requires it]
ACL, well said man. It sounds like you are heavy on the quant side.
Definitively, I will say that you need to take at least Calculus and Statistics. I can't stress enough that having a fundemental understanding of calc will make any sort of calculations you do and understanding the global models that are used alot easier and statistics will make interpreting your metrics infinitely easier.
While I don't use much more than the four basic functions on a daily basis, when we are weighting in risk and performing risk-metric analysis on our portfolios, having an understanding of higher math makes life alot easier, as you can start asking more in depth questions when you review the models and assumptions behind it. The same holds true with understanding and balancing an options portfolio (there's some advanced calc right there for ya) or being Delta-One or Delta Neutral within a portfolio.
While the more math you know makes this easier to understand, with an understandign of calculus and statistics, it makes things much easier to understand.
haha ty, just one of the roles my bosses were nice enough to hand me for next year. that being said, having soft skills is absolutely essential too, and that's where the remainder of my job will focus on. to the OP, you'll be happy to hear they encouraged me to take more "soft classes" to become well-rounded and to "have fun" this last year in school
For long-term investing (ie not trading), it depends slightly on the asset class. Equities: Relatively little maths needed Fixed income: A bit more mathsy Derivatives: Mind-blowing maths.
Maybe things are different in the US, but in the UK I know plenty of people with degrees in Classics, History, English Lit etc who have been very successful in AM, having last studied maths in school aged 16.
So, how do they get their Maths level up?
Really entering this field does require a basic understanding with the level of calculus mentioned by Anthony.. if you come out with a PhD you are definitely overqualified.
I would have to argue that fixed income can definitely be on a level VERY close to derivative work, based on what I have seen on a daily basis. Breaking down the math behind probabilities of payback, yields, etc can happen every day. I don't want to get into too much of it because so much is asset allocation these days where there are more models than you can shake a stick at.
If you really want to know the basics, there is a great book called "The Naked Guide to Bonds" which is an excellent primer to the level of intensity you can expect to start with in debt.
Well, my interest remains within Equities, and want to stay as far away from Fixed Income as I can.
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