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PhD roles in finance industry

ysmith

Joined
11/2/10
Messages
15
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I am applying for a Ph.D. in Financial Engineering and have talked to friends/acquaintances at Northwestern (Ph.D. Financial Engineering), Columbia (MFE) and Princeton (Ph.D. Financial Engineering). All three of then have explained that most often than not Ph.D.s end up stuck in a back room analyzing and working out solutions to complex problems, then reporting back to the front office with explanations/recommendations and going back to the back-room drawing board. My motivation for pursuing a Ph.D. is to contribute to the existing body of knowledge in a practical field such as Financial Engineering. However, the prospect of being stuck in a back room "crunching the numbers" does not sound very enticing to me. I would much rather do academia with consulting.

Hypothetically, do you really need a Ph.D. to do financial engineering in industry? Realistically, a company could just hire top researchers from academia from time to time to tackle the hard problems and have the MFE people apply the results. So what kind of roles do Ph.D.s generally hold in industry?
 
Your friend is right, that often happens.
I would generalize that still further and say that is the fate of the majority of all science PhDs.

The amount of research outsourced to academia is suprisingly small, though some people do make a reasonably good living that way.

To an extent however, you are asking the wrong question.

The right question is what sort of role do you want, and what are your chances of getting, it, followed by how you can maximise the chances.

With no knowledge of you personally, I can say that there is a good chance of getting what you want' the odds are not frightening unless you have very narrow goals in an area that many others want.
 
reply

I guess I see your point.

As Derman put it in the new interview: It’s not exactly what you think. In the quantitative area, a lot of what you will do is often grunt work that is nevertheless very necessary.

My reasoning is this. I can still work in academia and try to come up with practical results. I value my time and academia from my knowledge of it allows teachers to have plenty of let's call it free time to devote to research or personal interests. I guess you can comment better on this, but in with a good Ph.D. and good research skills an academic can make 120K-140K a year (9 month), my impression is that after the crisis jobs for highly qualified quants fall in the same range (again I am not an expert so please correct me if I am wrong). Conclusion: why bother? In one scenario you get to work on problems that you find exciting and that you can select yourself, in the other, you get to do the grunt work for a company while stuck in the back room. In either case, you are financially rewarded with almost the same amount. That's an easy decision for me.

What's wrong with my logic? What are the real benefits of working in industry with a Ph.D. in Financial Engineering?
 
Fresh Finance PhDs who take positions as Assistant Profs are getting $160K - $200K for 9 months + $40K for summer. After tenure, they get a lot of additional compensation through Executive MBA teaching and consulting.

The Finance PhDs who are working in the hedge funds are earning a lot more than that. It is not grunt work. Most of them are doing cutting-edge work in the Fundametal Research Group of the Hedge Fund.
 
Firstly, although TJ's numbers are realistic, there is no guarantee of an academic position, and some people really don't want to teach. Sadly not being able to teach does not seem to bar that many people from academia...

However we seem to be focusing solely on money, which fair enough.

So far the only numbers used have been base salary, but of course there are bonuses to be had, and these can be 200% of base. Also base salary in academia typically doesn't go up all that much, and your expectation of lifetime income from academia is typically a lot lower than industry.

But of course not all industry jobs pay well...

There is grunt work in academia as well, and people who have worked in both tell me of much greater frustration with the bureaucracy in universities than in banks. There is obvious sample bias in that statement, but I believe it to be still very true.

What I find hard to call is stabilty of employment. That may not be important to you now, but that can change quite harshly.
 
PhD Finance > PhD Financial Engineering in the finance industry in my honest opinion. Lot's of PhD Finance from top schools are picked up to become traders/quant strategists/research/etc at big banks and hedge funds. A PhD Financial Engineering from the mentioned schools would get you into a good shop for sure though as long as you meet their criteria. But I am not sure about the work. I would assume it would be technical work as that is what your brand would be.
 
There has been a thread on this before. I think. Yes Ph.D. Finance > Ph.D. Financial Engineering in the finance industry. But then again how many Ph.D.s in Finance graduate every year and how many Ph.D.s in Financial Engineering? It's kind of like a doctor and an endocrinologist. Lotsa people become doctors, very few get to become endocrinologists. I personally prefer Financial Engineering to Finance because of the mathematics aspect. I am majoring in Math, Econ and Comp Sci and Financial Engineering to me is the best way to combine the fields while staying focused on the math.
 
In USA, they graduate about 250 Finance PhDs every year. 100 of them will go back to their home countries. 100 will take up faculty positions. The remaining 50 come to Wall Street to make $. Some of those who take faculty positions come to Wall Street as soon as they get their Green Card.
 
conclusion

So our basic conclusions were the following then:

(1) The benefits of working in industry are higher compensation and the possibility of working on cutting edge applied research

(2) Ph.D. Finance > Ph.D. Financial Engineering in the finance industry

(3) Financial Engineers are essential in the finance industry as very little work is actually outsourced

Anyone wanna throw in any more axioms here? I am trying to build a system so I can make some conjectures/theorems :)
 
People talk about getting jobs in academia as if its easy.

It might be easier to get Finance professor positions, but for math or science, getting a tenure track position (aka, the one that actually pays the six figure salaries cited) is incredibly difficult. Probably more difficult than getting a quant position.

For a quant position, you have to get a Phd at a decent university and answer a few tough interview questions. The questions are, for the most part, easier than a preliminary exam.

For an academic positions, you have to get a Phd at a decent university and publish multiple papers in prestigious journals. Each such paper represents solving a previously unsolved problem in mathematics.

Furthermore, failed academics end up as adjuncts making 30k a year for 80 hour work weeks, where as 'failed' quants end up as software engineers or risk managers making 100k++ for 50 hour work weeks.
 
About getting a positions in academia I will say this, depends on your goals.

You can go to a nice liberal arts school and still make 100K and up while teaching three courses a semester. I personally know at least 6 Ph.D.s doing that. So the question becomes why get a Ph.D. in the first place? Natural answer is to advance the frontiers of science. That requires publishing papers and solving problems. I can't agree with the solving problems part, however. If you can get 4 papers that solve some fairly important questions in mathematics in 4 years then you are pretty much set. No more publishing for you. After that you can publish general stuff like what you think about the weather or how you feel about the Giants winning the Superbowl and people will still read it. I've done research on Parrondo's Parradox (very interesting, by the way) I've read the work of the 3-4 most prominent authors (won't mention names). They had at least 8 separate papers in at least 4 prestigious international journals with pretty much the same content (mathematically). No major additions (mathematically) maybe modifications or variations on a theme. But that's your quota for 4 years right there. So it's very subjective in some sense, but bottom line is if you like what you are doing and you're excited about doing it then you'll be excited about publishing papers. Otherwise, why bother with the Ph.D. That's the whole purpose of the degree, i.e. expand the current knowledge base by contributing with a significant piece of research, i.e. a dissertation.
 
I don't know how demanding a quant position is. That's what I was trying to find out with this post. Is it just crunching numbers and doing grunt work or actually doing exciting research?

From the answers I've seen so far it's about both and but with better compensation than academia.
 
Well if you are genuinely interested in doing research and building a name for yourself, then you should go for an academic position. Generally there are at least two faculty positions available for each Finance PhD and the ratio is projected to increase to 3:1. Right now, they are filling 70% of the available faculty positions in Finance with Economics PhDs and not with Finance PhDs. I am not sure whether they will take Financial Engineering PhDs. They generally require the PhD from a Business School. But you can easily make $300K - $400K as a Finance prof in a decent university (including Executive MBA teaching and consulting income). But that is actually much less compared to what the Finance PhDs on Wall Street make.

I don't think it is fair to classify risk managers and software engineers as "failed quants". There are a lot of them on this forum and they may not quite agree with your classification.
 
TJ,

Most Financial Engineering degrees allow for some leeway in terms of courses (Northwestern, Cornell and Princeton for example). The econometrics sequence would not be easy to fulfill but one can make up for the finance courses by taking them at the respective university's business school. So it seems plausible to me to take a position as Ph.D. in Finance at a business school. That's actually a very interesting scenario and one I had not considered. So thank you for the comment/suggestion.
 
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