Inside the Education of a Quant

After decades on Wall Street, you'd think Jim Gatheral would buy a yacht and sail around the world, sipping his own brand of wine. Instead, the Bank of America/Bankers Trust/Merrill Lynch veteran turned to academia in 2009 when he joined Baruch College in Manhattan as co-professor of the school's mathematics department. Advanced Trading editor-in-chief Phil Albinus recently spoke with Gatheral and his colleague, Dan Stefanica, who serves as director of the master in financial engineering program at Baruch, about the differences between academia and Wall Street, the current demand for quants in financial services, and the possibility of a coming quant glut.

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Jim, you worked for 17 years at Merrill Lynch before joining Baruch College. Why the move from Wall Street to academia?

Jim Gatheral: There are two parts of that question: Why leave Wall Street, and why Baruch College? The first part is freedom. Academic freedom is a very valuable thing. The ability to say and write what you want without any commercial constraint is very valuable and is one reason I came to Baruch.

As for why Baruch, I was already familiar with the program. They had invited me to talk to their students — I liked the atmosphere here, and I liked that I was going to be part of the mathematics departments as opposed to an engineering department or a business school. Here, I have a friendly group of people who are experts who will help me accomplish my research goals.

What was the bigger lure — the opportunity to pursue research or teaching the next generation of quants?

It's a different feeling, but love teaching. One of the reasons to like teaching is that it helps with research, because to teach something, you have to understand it. One can also say that one never really understands something unless one teaches it, and for most people you don't discover that until you teach it.

Even the undergrads I teach — it's helpful because I have to go back to basics to explain these things to people who haven't been exposed to financial mathematics before. Teaching undergrads is a cleansing experience.

When was the quant program at Baruch established, and how many students currently are part of the program?

Gatheral: It's 10 years old, and we have 30 students.

Dan Stefanica: The number of students varies from 20 to 40. We interview a lot of people and do two rounds of interviews. Last year we received 672 applications; we offered spots to 43 students, and 30 accepted our offer.

Has there been a dip in interest in becoming a quant since the market meltdown?

Stefanica: Yes, initially in 2009. People were making career decisions while the crisis was unfolding, and across the board there was a 35 percent dip in numbers. After 2009 the numbers started recovering to the point that last year was actually a record year for all of our programs. And this year was comparable to last year.

So there was a one-year dip. And I think it mimics what happened to employment in the industry.

It seems like most Wall Street layoffs have been in the back office and on the trading desk. Has the downturn hit quants?

Gatheral: Certainly not at the company I came from. There was an implicit understanding that smart people don't get fired, and almost by definition, quants are smart.

Are big pay and job security the lures of being a quant?

Gatheral: It's clear that compensation is major part of it. The best students can do almost anything — they can do chip design or computational genomics, anything technical. But sadly, there isn't that much demand for technical graduates in other fields. But there is huge demand for it in finance. And the compensation is high relative to any "normal" job. Even the starting salary is high.

I remember working with a phenomenal guy at a hedge fund who was working at a software company in California; he said that compared to working there, working at an investment firm on the East Coast is hard work. The pay was low and it was boring. Working in an investment bank — it's pretty lean. There are lots of smart people, and you are constantly pushed.

While the role of the quant hasn't changed much, it has expanded as algorithmic and black-box trading have flourished.

Gatheral: That's right, because every role that you can identify has become a quantitative role. And that's true of society at large, not just in finance. In the beginning days of risk management, it was about talking to people and telling stories to senior management: "This is what people are doing. This is how I see the risk profile of the institution." There might have been one page of numbers from a spreadsheet.

Now everybody needs to see scenarios, for example. And if you have a portfolio of complex instruments, you need to do what-if scenarios that require heavy computation. You need people who can figure out how to do fast computations with finite resources, and you need people who know how to do parallel computation, people who know how to use the cloud and so on.

Every time somebody asks for something, there is a demand for somebody more quantitative. As you see, all these cash traders have been replaced by algorithms. So there's no future for traders — there's a big future for sales traders, but no future for traders.

Phil Albinus is the former editor-in-chief of Advanced Trading. He has nearly two decades of journalism experience and has been covering financial technology and regulation for nine years. Before joining Advanced Trading, he served as editor of Waters, a monthly trade journal ... View Full Bio

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