Most quant heavy/technical desks

I know that fixed income is generally the most quant heavy but what other desks tend to be rather quanty. are the more quant heavy desks naturally less prone to automation?

Comments (17)

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Jul 28, 2022 - 8:07pm
popper_stoic, what's your opinion? Comment below:

Could you please explain what the XVA desk is?

I'm starting a rotational program next week and that desk was brought up briefly in a convo with an MD but didn't want to dominate the conversation by asking more about it. Very curious now..

Jul 28, 2022 - 8:22pm
GeeeMoney, what's your opinion? Comment below:

basically all products that has convexity in its pricing XVA will "convexity correct" it, and charge a premium for each transaction, and "prop trade" with the premium collected. although the PnL XVA generates is not as good as flow desks on average, but its technicality will boost your CV for prop trading shops/HF 

Jul 28, 2022 - 9:20pm
popper_stoic, what's your opinion? Comment below:

Thanks GeeMoney, and from your understanding how technical does an individual need to be to get a seat there?

Are we talking math majors or are we talking just technical enough + curiosity/work ethic.

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Aug 6, 2022 - 9:01pm
Transcending, what's your opinion? Comment below:

This is very misleading and not what xVA desk does - there is no prop trading and there is nothing involving convexity adjustments. Here's a counterexample: bonds have convexity and yet there is no xVA involved for this product because it is not a derivative. Convexity adjustments refer to something completely different and most applied to interest rate swaps with mismatched settlement and reset dates (vanilla interest rate swap vs. constant maturity swaps).

Let me clarify the definition: xVA are a series of valuation adjustments involving any type of derivative portfolio to account for the credit risk (formally known as counterparty credit risk) of the issuer engaging in a long derivative position from the broker-dealer (BD) [known as CVA - credit valuation adjustment], the BD's own credit risk (DVA - debt valuation adjustment), and a series of other adjustments related to margining (MVA), funding (FVA), capital (KVA) and so on.

In simple terms, the BD who is short a derivative contract collects a premium (this part you mention is accurate but not for the reasoning you suggested) because of the riskiness of the issuer might default on its contractual obligations related to the derivative (think final payment of a forward, margin requirements for futures, quarterly swap payments and so on) known as CVA. In return, the BD will also pay a premium to account for its own default risk on the same types of payments called DVA. Typically DVA < CVA and these adjustments are netted.

Complicated quantitative credit models that take into account loss given default (LGD), probability of defaults (PDs), expected exposure (EE), discount rates, and so on are all used to price CVAs/DVAs and similar computations for other adjustments. Simple models will only have constant risk neutral probability of defaults or constant yield curve assumptions but the more complex ones involve simulations run in code to predict future exposures and various default scenarios using stochastic default probabilities and dynamic yield curve (short rate) models.

Now that we have a clear understanding of xVA what do these desks actually do? Traders look at the outstanding derivative contracts on the BDs book and hedge out these counterparty credit risk exposures through credit derivatives (CDS, CDX) and might invest in the excess cashed received from CVA in relatively safe money market securities. The quants on the desk will support the traders in pricing these xVAs, answer technical questions, and build analytics such as simulation models in C++ for pricing and exposure prediction.

It is a very quantitative desk and a thorough education (masters in financial engineering or STEM PhD for the quants/traders, or really strong undergrad in STEM from a top school for a trader) and understanding of derivatives across asset classes with the corresponding risk exposures are a must. This desk is not the sexiest, and much different from your typical derivatives desk where understanding flows, market moving events, and strategies is necessary. Rather, it is closer to a risk function for the bank given it is not market making the product but instead understanding the credit risk of the BDs derivative portfolio and hedging out this exposure (purely a hedging desk, no speculating). 

Aug 3, 2022 - 5:43am
punk, what's your opinion? Comment below:

I used to be on the mortgage securitization desk the jumped over to trading, def very technical and happy to share more

Aug 3, 2022 - 7:47am
qualea, what's your opinion? Comment below:

so you jumped to mbs trading? would you mind sharing what kinds of technical stuffs the desk is dealing wth? the question sounds really vague, since I don't have a single knowledge about mbs, so please excuse me for that

In my office there's only 1 mbs trader(Director) and he's very introverted no one at my level really tried to reach out. But other executives kept on mentioning that he's an extremely technical and smart person. Always wanted to know what kind of work mbs trader/mbs desk does

Aug 3, 2022 - 8:25am
punk, what's your opinion? Comment below:

I now trade all sorts of ABS including MBS, and have now branched towards CLOs and CDOs. Given my background in structuring MBS products, the switch was relatively straightforward although market psychology is an ever evolving cad.

As it relates to MBS, the housing market is a complex machine to model given the number of variables at stake. As I screen through junior candidates, a prerequisite in finance or even economics is not necessary in my view. I prefer the candidate to have a rigorous background in mathematics which by extension informs me there is a raw analytical aptitude I can train to understand our side of the financial markets. I have a dual degree in mathematics and statistics, while other common majors include computer science, engineering, and physics. If you do not have a background in those, it will be hard to get an interview. That being said, one of the most brilliant minds I work with majored in philosophy.

Favorite interview topics of mine which are relevant to the job deeply involve probability and statistics.  For those with non-finance backgrounds, I expect a rudimentary understanding of bond math and simple loan calculations. For quantitative finance/economics majors, I expect a clear understanding of the yield curve as after all, fixed income is applied mathematics at heart. Standout candidates in the past can articulate a nuanced view of the economy, their motivations for pursuing a seat at the MBS desk, understand key rates like SOFR/LIBOR, treasuries etc.

Read and understand "The Handbook of Fixed Income Securities" by Fabozzi to see if this job is for you 

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Aug 6, 2022 - 1:51pm

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