Trading of asset backed securities and exotic options
Hi all. Some questions if you don't mind helping out someone looking for a new job.
Background: I have an interview coming up for fixed income trading at a boutique. I was told that I'd be considered either for high yield or their abs group. Now, I've never even contemplated fixed income trading. Always thought I'd do equity exotics (note, I don't have a masters yet, but ideally I'll be going to get a mfe/math in finance eventually). But you can get pretty quantitative with fixed income products as well so I'm interested. I'm thinking I might do a couple years in trading, get a mfe, then head back into trading at a more quantitative desk. (Note, before anyone asks, I was an engineering undergrad. Did operations research and studied a bit of financial engineering. Learnt a lot more in my own spare time).
I found this thread: //www.wallstreetoasis.com/forums/correlation-between-trading-desks-and-qu… . Where one of the first posts seems to claim that CDOs/ABS are extremely quantitative with respect to mortgage trading. My first question is if this is actually a true statement. The conversation sort of devolves and the thread dies before I can get any more serious answers. Essentially, just how quantitative is trading abs, compared to exotic equities or swaptions and stuff? I've been reading through Hull (pretty interesting read), and it seems like there's a decent amount of math in structuring the actual product. But as a trader, is it your job to do both the structuring and subsequent selling of the product to investors? Basically, what do you actually do during the day as a trader on an abs desk?
Likewise, I'm also sort of curious what you do when trading equity exotics. I read through the Wilmott forums as well (to nerd out a little bit) and it seems like there's a great deal of modelling to price the exotics and then selling them to clients. I'm assuming this is actually what you do, and to be honest, it seems really interesting. My question for this, is if you only trade 1 product or multiple. For example, do you only do asian lookbacks, or can you be working on a lookback and an american and a bermuddan, etc. etc. etc.?
I appreciate your help in advance, and hopefully I can get some serious helpful answers here.
Likely will be doing a lot of modeling. Whether it is building models to value products or scanning through database for opportunities relative to others. Structured products are very model and quant intensive from the standpoint of valuing (not from algorithms). Meaning people pick and choose product typically rather than just randomly buy as market itself is less correlated than others.
I don't have a key idea what you do at a boutique but at HF it is mostly model driven and then scanning database for opportunity. Bank might be used potentially for products to buy and then finance and sell off to investors. You might actually do both from financing side (buying to finance and then buying and making markets of the products themselves). Not sure if that answers question.
Overall role would likely be making markets like other traders etc..... but you might be more model driven on value for products coming to market or in market. Meaning less flow more model/value.
Thanks for the response. That's what I sort of assumed I'd be doing. If you don't mind answering another question, how does the job of the trader then differ from the job of a structurer on the desk or even the job of an analytics team?
For reference, I spoke to my contact today at the company, and he mentioned that there's no update to potential trading jobs yet, but the mortgage analytics team would like to meet with me. I'm assuming that this is support in developing the models. But how would that differ from what the trader actually does himself?
The structurer would be more on origination side, while the trader would handle duties post origination (market making, taking position/view). Your role I think would be more research, model driven (equity research type role as a dumbed down comaprison). The trader himself would do the above, but also trades the product and makes a market for the product. It really is origination versus post origination is what my take is
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