What does GS Volatility Trading do?

My former TA interviewed with that group a couple years ago- they were looking for a physics or stats post-doc with a strong stochastic calc background to join as a quant developer.

I believe Joe Zhou runs the desk now- he gave a talk a few years back on his research.

Date: 09-22-2003 Start Time: 5:30pm End Time: 7:00pm Speaker: Joe Zou, Goldman, Sachs & Co. Location: Interschool Lab, Schapiro CEPSR

ABSTRACTWe examine the relationship between leveraged firms' default probabilities and their equity options' implied volatility surfaces. We extract asset value distributions consistent with the equity options volatility skew and term structure. The model inputs include only observable equity options market data plus the expected recovery rate in a default event. The equity option implied asset value distributions do not rely on assumptions about the stochastic process followed by the assets. Numerical implementation of the model is straightforward and robust. Application of the model to current credit default swap market yields promissing results.

Outline of the presentation:

. A brief review of structural models for risky debt valuation . Extraction of the default probability based on the information embedded in the equity options volatility surface . Term structure of default probabilities and credit default swap valuation . Numerical Implementations . Empirical tests and results . Greeks of Credit Default Swaps . Concluding remarks

BIO Dr. Zou is a Vice President with the GSPS volatility trading group at Goldman, Sachs & Co. Since joining Goldman Sachs in 1994, he has played a wide range of roles in developing equity derivatives pricing and risk management models, equity volatility trading strategies, and proprietary trading. He holds a Ph.D. in theoretical physics from Princeton University. Prior to joining Goldman Sachs, he was a Research Associate at Stanford University and a long-term Research Fellow at the Institute for Advanced Study in Princeton. Dr. Zou is based in New York.

^ I think they're talking about the Quant Vol Trading group. It's listed under GSPS in the interview excerpt.

Website says: Quant Vol Trading is a proprietary trading group that uses various statistical and fundamental signals to trade equity and index options on electronic options exchanges in the US, Europe and Asia.

Would it be accurate to say that except for the quant trading groups in GSPS, all the other GS prop arms (GSPS, SSG, PIA) want people with IBD valuation/modeling backgrounds? Thanks.

I don't know anyone personally who works in prop at GS. My guess is the vast majority come up through the Securities group or the Markets division of another bank or perhaps a hedge fund. Here are the bios of a few top current and former execs:

Mark McGoldrick is co-head of the Global Special Situations Group for the Fixed Income, Currencies & Commodities (FICC) Division of Goldman Sachs. He became a partner at Goldman Sachs in 2000. He earned a BA from Bowdoin College and an MA from Columbia University.

Raanan Agus is a graduate of the Ramaz Upper School, Class of 1985. He continued on to Yeshivat Har Etzion for a year, and received his A.B. in economics from Princeton. He received a joint JD/MBA degree from Columbia University, and has been at Goldman Sachs for ten years. He now serves as a partner at the firm in the Principal Strategies Group of the Equities Division.

Goldman named Richard Ruzika, 48, the global co-head of its special situations group in February, 2008. Ruzika, like CEO Lloyd Blankfein, joined Goldman by way of commodities house J. Aron. Ruzika is a 1981 graduate of Columbia College.

Dinakar Singh is the founding partner of TPG- Axon Capital, a leading global investment firm. Through offices in New York, Hong Kong, and Tokyo, TPG-Axon invests over $6 billion of investor capital in public and private markets across the world. He was previously a partner at Goldman Sachs, where he was co-head of the Principal Strategies department. The Department is one of the key franchises at the firm, and is responsible for investing the firm’s capital across global markets. Mr. Singh helped build and lead a premier global multi-strategy investment group, and had responsibility for a multi-billion dollar portfolio of investments spanning a wide spectrum of products and markets. Mr. Singh is a 1990 graduate of Yale University.

Josh- I don't have the Zhou presentation on file but here is a good article on the topic.

http://www.math.nyu.edu/faculty/avellane/Avellaneda.pdf

When I was in GS, some of the option traders referred to themselves as Vol traders. It was a flow desk.

Ok guys, thanks for all your comments. That has clarified a lot.

I talked to a trader in GS equity volatilities. He says he does a lot of prop trading. They are not a prop group - their role is to make markets, and, like all desks, to invest the firm's capital when they see the opportunity. According to him, they did a lot of that.

More or less every bank has a vol trading desk in their flow business.. more sophisticated desks though do dispersion and correlation, associated with it. For these type of strategies though, you will be surprised enough in knowing that is not GS the leader but banks like SocGen, BNPP, JP, and Commerzbank. they are all famous because of these strategies combined with great vol products and exotic products