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Quanttechnique

Quantitative analysts focus on developing models for pricing, hedging, and risk management of derivatives, with mathematically oriented analysts relying on stochastic calculus and numerical analysis. Statistically oriented analysts, on the other hand, evaluate stock valuations using accounting ratios and statistical methods, accepting that model performance can only be assessed over time. Both types require strong mathematical knowledge and programming skills.

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11 views1 page

Quanttechnique

Quantitative analysts focus on developing models for pricing, hedging, and risk management of derivatives, with mathematically oriented analysts relying on stochastic calculus and numerical analysis. Statistically oriented analysts, on the other hand, evaluate stock valuations using accounting ratios and statistical methods, accepting that model performance can only be assessed over time. Both types require strong mathematical knowledge and programming skills.

Uploaded by

derkuzesta
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

Techniques

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A typical problem for a mathematically oriented quantitative analyst would be to develop a


model for pricing, hedging, and risk-managing a complex derivative product. These
quantitative analysts tend to rely more on numerical analysis than statistics and
econometrics. One of the principal mathematical tools of quantitative finance is stochastic
calculus. The mindset, however, is to prefer a deterministically "correct" answer, as once
there is agreement on input values and market variable dynamics, there is only one correct
price for any given security (which can be demonstrated, albeit often inefficiently, through a
large volume of Monte Carlo simulations).

A typical problem for a statistically oriented quantitative analyst would be to develop a


model for deciding which stocks are relatively expensive and which stocks are relatively
cheap. The model might include a company's book value to price ratio, its trailing earnings to
price ratio, and other accounting factors. An investment manager might implement this
analysis by buying the underpriced stocks, selling the overpriced stocks, or both. Statistically
oriented quantitative analysts tend to have more of a reliance on statistics and econometrics,
and less of a reliance on sophisticated numerical techniques and object-oriented
programming. These quantitative analysts tend to be of the psychology that enjoys trying to
find the best approach to modeling data, and can accept that there is no "right answer" until
time has passed and we can retrospectively see how the model performed. Both types of
quantitative analysts demand a strong knowledge of sophisticated mathematics and
computer programming proficiency.

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