After-all everything in Life can be expressed using Options. Leaving ASSA?

[Edwin]

I'm at a South -African University, third year Student. Even though I find the Life-Insurance mathematics interesting (CT4 & 5) I doubt if studying towards being a Life - Insurance Actuary is my first Option!

I just wrote the CT8 exam in the April sitting and I'm waiting for the results, don't know if I've passed but I don't mind going through everything again If I didn't . Ever since I started the subject I've enjoyed it WITH ALL MY HEART. I even bought the book ''Options Futures and Other Derivatives'' ~ 8th Edition by Hull as well as the ACTED ST6 notes to read more.The most interesting thing I realised is that everything in Life can be expressed using Options; nearly all of life is a transfer of Concavity (downside exposure to 'x') and Convexity (upside exposure to 'x') from one side to the other. AND that's everything, including sitting Actuarial Exams. [Let me not go deep]

I felt more in love with Finance&/Investments especially the CT8/ST6 content, but ASSA(Actuarial Society of South Africa) have removed ST6 from their curriculum. I can't take the thought of the notes and the book ''Hull'' being wasted in my bookshelf ''for the rest of my life''. So I was thinking of deregistering with them at the end of the year and registering with IoA/FoA so that I can do ST6. But that's all after passing exams.
Anyway I kindly seek advice with the following;

1. Do you think it's a good idea, also is finding a job in the Finance/Investment field hard? If not should interest in a subject come before a job?
2. Do you think Actuaries in the Investment/Finance field do have skills that other professionals don't have?
3. Is the Acturial Profession well Marketing it's ''Investment Actuaries''?

 

[DevonMatthews]

1. In finance and investment? No. Specifically in derivatives? Yes.
2. Actuaries do not have any skills that are valued over any other professionals that already work in the area of quantitative finance; actuaries are probably mathematically weaker since the norm among investment banks/hedge funds is engineering, physics or maths PHD.
3. No. ST5&6 hold very little esteem in the banking and finance industry when compared to CFA charter holders for instance. The only time it would carry any weight would probably be when the guy hiring you is an actuary.

 

[Edwin]

Thanks a lot DevonMatthews, please clarify your first answer for me, I'm failing to connect the order of the responses.

Cheers

 

[DevonMatthews]

Thanks a lot DevonMatthews, please clarify your first answer for me, I'm failing to connect the order of the responses.

Cheers

I mean that it won't be hard to find a role in finance/investment, eg. back office settlement.. But to get a job in the front office trading derivatives will be quite difficult, and to get a job as a research quant which it sounds like what your interested in then you will almost certainly need a phd. If this is what you like doing so much then why not look at the certificate in quantitative finance: http://www.cqf.com/

Dropping actuarial to pursue this stuff would be 'high risk high return' in my opinion (And also high stress, keep in mind in this industry you will have to constantly justify your existence day in day out).

 

[Edwin]

I mean that it won't be hard to find a role in finance/investment, eg. back office settlement.. But to get a job in the front office trading derivatives will be quite difficult, and to get a job as a research quant which it sounds like what your interested in then you will almost certainly need a phd. If this is what you like doing so much then why not look at the certificate in quantitative finance: http://www.cqf.com/

Dropping actuarial to pursue this stuff would be 'high risk high return' in my opinion (And also high stress, keep in mind in this industry you will have to constantly justify your existence day in day out).

Certainly not dropping Actuarial, but I thought our qualification was diverse enough to breakthrough. I saw your ''Paul Willmott'' link, used to watch some of his lectures I think the syllabus is somewhere around ST6 content, though obviously deeper. For now I think I will leave ASSA for IoA/FoA so I can do ST6. Then get one more ''traditional'' ST say life and hopefully qualify.

I think the ST6 content will be enough to quench my ''Derivatives and Derivatives equivalents'' thirst. Won't worry much about practice!Generally I am interested in the 'awe' with which derivatives capture aspects of Life and I think studying it will make me happy e.g Mistakes can be explained in terms of a put Option! Evolution has Convexity effects blah, blah...

And like my signature goes; ''Life is LongGamma'' meaning unlike us, nature tends to keep a gain when burged, comparing it to 'LongGamma' ( Г > 0) ~ keeping a profit each time you do helta hedging.

Thank you DevonMatthews.

 

[Oxymoron]

I broke into a prop trading firm last year in India (and this time, not for burglary). It was two days of grueling tests on logic, programming, and understanding of concepts + your interest in the subject, justified by your experiments on it.

My perception was, they didn't give a damn about qualifications. They were looking at how your skills will contribute to their bottom line, and wanted you to pass the series of tests they were conducting to prove your worth. I can't comment on the other countries, but in India, prop trading firms usually hire this way.

So could try for prop trading firms in the non-banking space (if you're OK with the consequences that follow i.e).

(oh and I did not take up the offer btw)

 

[Oxymoron]

3. No. ST5&6 hold very little esteem in the banking and finance industry when compared to CFA charter holders for instance.

If the institute marketed us a bit better in non-insurance related areas, this would not have been the case. No disrespect to CFA, but they don't go through half the trouble we do and I've met CFA charter holders who have no clue how to derive even the black-scholes, forget exotics.

Actuaries hire actuaries as you say, and actuaries need to start getting into different fields for people to recognize their skill! We can't be living off mortality tables and the Winkie model forever.

 

[Edwin]

3. No. ST5&6 hold very little esteem in the banking and finance industry when compared to CFA charter holders for instance. The only time it would carry any weight would probably be when the guy hiring you is an actuary.

Why come up with ST6/ST5 if it doesn't carry a lot of weight. I used to hear ''Actuaries are now moving out to the non-traditional areas''. DevonMatthews don't you think perhaps it's time to review how successful the Actuarial profession is outside insurance and if it's necessary to maintain the reach out.

but they don't go through half the trouble we do and I've met CFA charter holders who have no clue how to derive even the black-scholes, forget exotics

The Paul Willmott link to the Certificate in Quantitative Finance shows just that. It's mean't to augment CFA with something that doesn't look much novel to an ST6 holder, although IMHO deeper.

 

[Oxymoron]

The Paul Willmott link to the Certificate in Quantitative Finance shows just that. It's mean't to augment CFA with something that doesn't look much novel to an ST6 holder, although IMHO deeper.

The additional content isn't much that can't be learned after ST6, what's the point in spending $20k on it (besides the brand name)?

 

[DevonMatthews]

I'm interested to hear more on this idea of options being able to describe everything in life? Mathematical physicists have a hard enough time using complex mathematical techniques such as Fourier series to model nature, so how can a relatively limited set of simple functions describe life?

 

[Lewin]

At this stage,i think quickest route to qualification plus doing the units you enjoy most should be your primary concern,not availability of job opportunities,you can always adjust your area of actuarial expertise once you get into the job market

 

[Lewin]

Devon is absolutely right about st5\6

most bank are just lloking for cheap accounting labour and will value ACCA\CFA more,i have empirical evidence on this

 

[Edwin]

I'm interested to hear more on this idea of options being able to describe everything in life? Mathematical physicists have a hard enough time using complex mathematical techniques such as Fourier series to model nature, so how can a relatively limited set of simple functions describe life?

Thanks Devon,

Options are associated with non-linearities in general not just finance, e.g a long Option is an exposure that says you benefit more when an event happens than you are hurt when the opposite happens. In life normally the difference lies in understanding this divide, EXPOSURE to, not probabilities of events is important in decision making.

I did a presentation last year for my CT1 class, entitled ''Immunisation is Charlatanism'', where I compared Immunisation to a short Option, short volatility, short gamma e.t.c

Outside finance, (life in general)

1. A spouse harmed by potential divorce is short volatility.
2. [An exam taker], who loses little from failing a subject but otherwise makes a fortune if they pass is LongGamma. Outcome compares to the profit diagram of a Long Call.
3. A street fighter who get's bruised during a street fight but becomes stronger after e.t.c list goes on

At this stage,i think quickest route to qualification plus doing the units you enjoy most should be your primary concern,not availability of job opportunities,you can always adjust your area of actuarial expertise once you get into the job market

That's true Lewin. Thanks!

 

[DevonMatthews]

Options are associated with non-linearities Outside finance

I think by this you mean 'asymmetrical reward/loss'

I also don't think i'm quite convinced RE the comment that probabilities are not important in decision making.

 

[Edwin]

I think by this you mean 'asymmetrical reward/loss'

Exactly. And an Option captures this asymmetry as a combination of contingent claims.

I also don't think i'm quite convinced RE the comment that probabilities are not important in decision making.

Devon, if I see something that looks like a Lion when walking along a busy street, I run for my life, screaming Lion, Lion!! Even if people try to shout,'hey Edwin , there's no Lion'. I run, until I think it's safe to confirm. I don't 'anchor' on the small probability of a lion walking along a busy street.

The important thing is that Options capture exposure (function of 'x') i.e how the event affects me, probability on the other hand is about what can happen (event 'x' ~ A Lion prancing along a busy street).

Decision making needs to move away from probability.

 

[Oxymoron]

I see we now have Nicholas Taleb joining the discussion.

and where are we headed again?

 

[Edwin]

I see we now we have Nicholas Taleb joining the discussion.

and where are we headed again?

Lol...

 

[DevonMatthews]

Exactly. And an Option captures this asymmetry as a combination of contingent claims.



Devon, if I see something that looks like a Lion when walking along a busy street, I run for my life, screaming Lion, Lion!! Even if people try to shout,'hey Edwin , there's no Lion'. I run, until I think it's safe to confirm. I don't 'anchor' on the small probability of a lion walking along a busy street.

The important thing is that Options capture exposure (function of 'x') i.e how the event affects me, probability on the other hand is about what can happen (event 'x' ~ A Lion prancing along a busy street).

Decision making needs to move away from probability.

When constructing a hedging portfolio one ignores probabilities, when one makes a decision in everyday life, it can be thought of more in a mean variance framework which is a probablistic mode of thinking. Why is a planning a career as an actuary more sensible than pursuing a career in professional poker?

 

[Edwin]

when one makes a decision in everyday life, it can be thought of more in a mean variance framework which is a probablistic mode of thinking

You are right Devon by saying mean - variance, but maybe more of Expectation than ''dry probability alone''!

 

[DevonMatthews]

You are right Devon by saying mean - variance, but maybe more of Expectation than ''dry probability''!

Obviously not a raw probability, but Mean and variance are both functions weighted by probability, correct? I don't quite understand you’re a-probabilistic view of every day decisions?