well it depends on how you measure intelligence, but i am thinking of the mathematical standard of the quant's ability and the complexity of the models.
there is nothing in the actuarial profession that even comes close to the type of work quants do.
our exams cover the level of finance / investment material a quant would be expected to know just to get a job interview.
we would like to think that our skillsets are comparable, but the truth is that (us) actuaries are good at talking and writing, but our models are often very basic and are lagging behind the investment industry quite considerably.
look at pension actuaries...most assume interest rates will be constant over the entire lifetime of a pensioner and the lifetime of an active member. This is beyond a joke to the investment world...it's hardly surprising BA's deficit went up by £1 billion over a 3 year period where markets have risen and contributions were high...just a case of actuaries adjusting their basis for horribly wrong assumptions.
how about actuary's economic models? Most are using Wilkie which doesn't even satisfy the no arbitrage requirement. yet we pride ourselves on this "great" model, and dedicate chapters of our study material to it, when in fact, no investment bank in the world would ever consider using it.
Why do we use such poor models? Because we lack the financial and mathematical grounding to apply and construct better ones. Most of the models used by quants would work well in life and pensions, e.g. market consistent models of interest rates using the Heston model, 2 factor short rate models etc etc.
We often say that this type of rocket science is not needed to model actuarial problems, but quants are dealing with similar issues in pricing long terms bonds, swaps etc. We deal with things like unusual benefit Guarantees, they have exotic options. Looking back at Equitible Life, you can argue that had we applied quant techniques, millions of policyholders would not have been messed about.
Perhaps our education system needs to move with the times, so that we can adapt to solve these kind of problems going forward.
A note about ST6/CID...this covers the basics that you would need to know in order to be prepared to apply for a junior quant position - nothing more. It's inadequate to provide a claim to be a specialist in this investment area. We need a paper like Advanced CID, to move in the right direction.
In case you are interested in becoming a quant...from previous discussions i had with some investment headhunters, i was told that a qualified investment actuary would be able to get an interview for a junior quant position, but would not be considered with more merit than a phd graduate.
Perhaps I am over critical, but we should not believe that just because we have passed some exams with nasty pass rates, that we are suddenly experts in modelling financial problems.
Last edited by a moderator: Jul 30, 2006