"Industrialization" of derivatives

[Alok]

I have heard a few arguments that the field of derivatives pricing is "industrializing".
So the skills required today are not the same ones required a decade ago.

Alex Kuznetsov makes this point (in a slightly roundabout way) in
his book "Capital markets for Quantitative professionals" where he
(briefly) mentions the march of electronic trading.

So here is my question to all the gurus out there. Do you think
this industrialization is really happening? If so, could you elaborate
on what form this is taking? Are we just talking about automation (algo trading)?
What effect would this have on the practitioners?

Aren't complex derivatives hard to automate? I realize that these are not very popular at the moment .
But won't they be back in a year or so? And if they do, won't they be impervious
to the automation/algo trading techniques?

 

[Uncle Max]

Derivatives become more complex, therefore they require more advanced skill set to valuate them.

The more complex derivative is, the more premium sell side can charge, because usually premium is included in purchase price. And if a selling bank is the only one organization which knows how to price such derivative premiums (read bonuses) can be amazing.

If you want to know more how and why banks create new derivative products read:
Fiasco: The Inside Story of a Wall Street Trader

As to aspiring algo trader part, read books about financial instruments and their mechanics. Then try to think some trading ideas. When you come up with something, try to implement your ideas using CS skills you have. After that, go to interviews at hedge funds and show them you way of thinking and knowledge. If you worth something, you will lend a job in no time.

 

[Andy Nguyen]

Automation requires standarization. Many of the OTC deals are negotiated manually. Maybe one day, we can just trade CDS like stocks from our computer. Algo trading will not replace everything. There are trades that take literally days or weeks to put together and these are multi million dollars trades. This is where the traders make their lunch money.