Hedge Fund Mathematics

I'm currently working in ER but would like to move to HF as I feel that I have more interest in PM rather than research.

As some of my colleagues has commented and I have searched on WSO and find that various quant skills are a plus for HF. Coming from a Physics major, I have no problem with algebra or calculus. However, what "specific" mathematics are important to say a long/short equity or a market neutral HF, eg. hypothesis testing? normal distribution? probability? Regression? Non-linear equations or calculus?

Hedge Fund Math

The type of math you will regularly use, in Hedge Funds, depends heavily on what kind of fund you are dealing with.

User @DeepLearning - Hedge Fund - Equity Hedge - Quant agrees:

Depends on the type of hedge fund. Machine Learning, Statistics, Time Series, Markov Models are all used heavily. Also just straight up linear regressions with regularization, coefficient constraints, etc. is used heavily.

For quantitative hedge funds, good, useful and clean data is usually more powerful than having a more sophisticated model. While quantitative hedge funds do use a good amount of advanced mathematics, they spend probably more effort in data collection/cleaning.
If you are using a unique and useful data but only performing basic regression techniques, you are probably going to get better performance than a fund that is using non-unique (but still useful) data but using sophisticated models.

Many PhD mathematicians are surprised to find that they spend most of their time applying undergraduate mathematics in creative ways rather than using the full extent of their graduate math knowledge.

Read More About Starting A Career In Hedge Funds

Looking to Break into the Hedge Fund World?

Want to land at an elite hedge fund use our HF Interview Prep Course which includes 814 questions across 165 hedge funds. The WSO Hedge Fund Interview Prep Course has everything you’ll ever need to land the most coveted jobs on the buyside.

Hedge Fund Interview Course

 
YourWorstEnemy:
Probability, stochastic process, ordinary and partial diff equations, analysis. Etcetcetc. You want to be well versed in all aspects of math, maybe get a masters in financial math or financial engineering its up to you

Why awp thinks this is hilarious? Was it a joke and these things are not actually needed?

 

Wouldn't this really depend on the strategy of the fund? I'm guessing most value investing funds for example simply rely on financial analysis, which is basic algebra at best. Renaissance technologies on the other hand probably has some serious mathematicians up in there.

 
Nyctola:
Wouldn't this really depend on the strategy of the fund? I'm guessing most value investing funds for example simply rely on financial analysis, which is basic algebra at best. Renaissance technologies on the other hand probably has some serious mathematicians up in there.

This.

-- "Those who say don't know, and those who know don't say."
 

Capital markets are full of data which attracts mathematicians. Specific mathematic areas that are popular in finance include:

Statistical Inference: what is the strength of the relationship that I am observing? Bayesian Probability: given a set of priors, what is the likelihood of X happening? Signal Processing Linear Algebra and Regressions: Financial models are essentially multi-factor models. Optimization: Portfolio construction and risk management

Financial Engineering is a huge academic and professional movement with nearly unlimited applications in financial markets. While having a PhD is a plus, there are certainly many, many jobs where a facility with math is beneficial/essential.

Let me know if you want more specifics.

-K

 
Best Response

Dolor vero quaerat est non quibusdam minima. Et molestiae aliquid dignissimos eos. Illo unde saepe voluptatem corporis omnis ipsum sapiente. Molestiae aperiam et debitis facilis magni.

Qui illo molestias commodi rerum voluptatem temporibus. Et ratione rerum qui consequuntur sit et cum. Vero sed architecto aut occaecati dolorum. Aut in suscipit eum quaerat nihil fugit. Qui aut et cum eos.

Career Advancement Opportunities

March 2024 Hedge Fund

  • Point72 98.9%
  • D.E. Shaw 97.9%
  • Magnetar Capital 96.8%
  • Citadel Investment Group 95.8%
  • AQR Capital Management 94.7%

Overall Employee Satisfaction

March 2024 Hedge Fund

  • Magnetar Capital 98.9%
  • D.E. Shaw 97.8%
  • Blackstone Group 96.8%
  • Two Sigma Investments 95.7%
  • Citadel Investment Group 94.6%

Professional Growth Opportunities

March 2024 Hedge Fund

  • AQR Capital Management 99.0%
  • Point72 97.9%
  • D.E. Shaw 96.9%
  • Citadel Investment Group 95.8%
  • Magnetar Capital 94.8%

Total Avg Compensation

March 2024 Hedge Fund

  • Portfolio Manager (9) $1,648
  • Vice President (23) $474
  • Director/MD (12) $423
  • NA (6) $322
  • 3rd+ Year Associate (24) $287
  • Manager (4) $282
  • Engineer/Quant (71) $274
  • 2nd Year Associate (30) $251
  • 1st Year Associate (73) $190
  • Analysts (225) $179
  • Intern/Summer Associate (22) $131
  • Junior Trader (5) $102
  • Intern/Summer Analyst (249) $85
notes
16 IB Interviews Notes

“... there’s no excuse to not take advantage of the resources out there available to you. Best value for your $ are the...”

Leaderboard

1
redever's picture
redever
99.2
2
Secyh62's picture
Secyh62
99.0
3
Betsy Massar's picture
Betsy Massar
99.0
4
BankonBanking's picture
BankonBanking
99.0
5
dosk17's picture
dosk17
98.9
6
DrApeman's picture
DrApeman
98.9
7
kanon's picture
kanon
98.9
8
CompBanker's picture
CompBanker
98.9
9
GameTheory's picture
GameTheory
98.9
10
Jamoldo's picture
Jamoldo
98.8
success
From 10 rejections to 1 dream investment banking internship

“... I believe it was the single biggest reason why I ended up with an offer...”