Quants, Investment Actuaries?

Can anyone tell me the difference b/w a Quant and an Actuary working in Investment Banking studying ST5,ST6 and SA6 or SA5.

I understand "Quants get paid more..." Is that all?

 

quants are a lot more intelligent too...most have phd's. And let's get this right...they get paid a LOT more.

 

quant would be implementing countless models C++ etc

gareth - whilst most have a phd i dont think you can fairly say who is more intelligent - quant or actuaries - (unless you administer some standardized reputable IQ test lol)

whilst some overlap between professions (mathematics and modelling underpins both disciplines)
both generally require a different skillset, in paticular written communication is becoming more important in actuarial.

both professions have common strengths, but each is also good at different things.

 

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.

 

ummmm


i think modelling is becoming more sophisticated in act profession i.e Barrie & Hibbert Economic Scebario Generator etc

things is if you look in insurance core reading (ST1-ST3) youll find the usual blurb about models....

model should be fit for purpose
actuarial judgment to choose parameters etc
***model should not be overly complex so that is long/expensive to run and difficult to interpret/communicate.****

i suspect the ** point is why it'll be a long time (if ever) for widespread use of stochastic volatility models etc, especially form a communication point of view -

clients of actuaries would never understand the literature written by quants (plus quants dont need to worry about communication to the same extent when assisting internal clients like traders)

plus would predictive power of more complex justify savings etc

when you think of all combinations and permutations, im sure some actuary with serious imagination could develop a seriously complex model that consider interaction of assets with liabs (especially with mortality, cat securities etc) in the various insurance sectors that ranks well in line ( ormaybe even above) in terms of complexity with the current models used by quants
maybe the "pricing reserving of GAOs" paper was such an attempt (or maybe it was another one in BAJ which had the one with the exotic options youre talking about??)

but probably, it will be the same mark scheme type story, where
aim to strike a fine balance between complexity and practicality, with regards to investment models, using act control cycle as framework,
blah blah blah blah...

 

I have friends who have done PHds after uni- OK I don't know any who did them in maths or finance etc. but in other scientific subject like biology and so on.

Many of them are still at uni in their late 20s trying to finish off their PHd. This means they have no work experience to speak of and loads of debts. Also they have no money saved and have paid nothing into any pension scheme.

After speaking to many of them, they are nice people but I get the general impression they are living in some dream world.

As someone who considered PHd many times, I am now glad I didn't. For us outside the academic world, we can sometimes think that people who do PHds sit around discussing highly intellectual issues day in day out... it's easy to think "how lucky they are" when we are doing something dull such as documenting a dull process. In reality, from what I've been told by those who have spent the last 5 years doing a PHd, they aren't very productive at all in the main. Only a small % of those doing a PHd will be any good, the rest will be spending the rest of their time socialising, drinking tea and so on and cramming at end of term.

As much as I loathe the actuaries exam regime, I do think it requires more dedication to pass actuary exams on top of a week of full time work compared to spending all week procrastinating at an uni somewhere. I do reject the idea that PHd students are more intelligent than actuarial students, in the main.

I am in no way dismissing the arguments made by Gareth etc. on this thread, just telling you the grass is not greener.

You could argue that the decision to become an actuarial trainee after graduation, compared to PHd, is a better one career-wise since after 5 years of study you'll have a very good job in actuary whilst with PHd what are your realistic expectations for work? Some of the top calibre PHd people would perhaps get a quant job, most wouldn't.

 

very true scarlets, only top phd people will be accepted into quant roles. i guess that's why an investment FIA will only get you an interview as a quant, it's probably considered equivalent to a top phd graduate.

 

you could also argue that this will be our undoing? Quants use models that are very complex but perhaps this is necessary to achieve sufficient realism to model the real world.

the big difference between quants and actuaries, is that quants serve an internal function in banks, which is to support traders and make money. their performance is judged on how well the models work and thus by how much money they bring in.

our focus on communication means we are willing to sacrifice a close fit, for something that can be more easily explained to clients (especially in consulting).

for instance, if we looked at share prices, we would probably be happy with a lognormal distribution and would apply classical Black-Scholes to model an option. whereas a modern quant would look at a exponential levy jump process to capture the true underlying nature of stock prices.

the problem i see with this is that the actuary may under-reserve, misprice etc as a result of oversimplifying the problem.

In the past I worked in pensions and was mystified why actuaries felt that a single assumption for pre- and post-retirement interest rate over all time is realistic. I suppose pensions actuaries will argue a suitably chosen average rate is more or less equivalent and is easier to explain to clients... but personally i think it is more a matter of being unwilling to move with this times (it worked in the 60's, so why fix it )

 

which sounds good to me

one thing that disappointed me whilst observing people at one of my previous actuarial workplaces was that after qualifying, the individual would become a manager and then be pre-occupied with running projects, meeting deadlines, dealing with staff, recruiting and so on which is stuff done by all kinds of managers in all lines of work. I did wonder how much time the qual actuaries spent really using their education from the exams e.g. developing new adn better models, and so on. Many seemed to have completely forgotten the maths learnt from earlier exams and as has already been said the people who qualified a long time ago never encountered some of the maths that students today must learn. And the people who I tried to get a discussion with about models didn't seem very interested, which I found disappointing.

 

I'm definitely glad I chose to become an actuary rather than go on and do a PhD and go down the quant route; realistically, the best quant jobs are all in London. I like the fact that I'm not tied to spending all of my career in London. Plus, a PhD overqualifies you for a lot of jobs; I know people with PhDs in biochemistry who went on to become nurses, or one guy with a PhD in economics who's a teacher.

 

On the first day of my PhD my supervisor told me I could do anything I liked over the three years. He gave very little guidance to me or anyone else and it was a very Darwinian existence.
Of the three of us who started that day, I had a permanent academic position within 4 years, another is now one of the most senior research chemists in ICI and the third couldn't hack it, dropped out after 6 months and ultimately became a "quant" for a hedge fund. The fund went broke on the same day that "Long term Capital Management" failed. He now works in a similar role for another hedge fund.

 

InfoGreedy

I've read quite good stuff about these two careers...Still want to know if Quants are regulated and as well organised as The Actuarial Profession, if yes what their professional body?From what I understand they (Quants) are more like a mainly research occupation..A bit confusing that an MSc in Financial Maths from City which is supposed to be a kingsway for a career as Quant grant exemption in ST5 and ST6 (2 professional exams!!! ). By the way,anyone heard about what a Financial Engineer is? Gareth, Scarlet,...any clue?

 

I don't think quants are at all as organised as actuaries. But then, being a 'quant' is like being a 'banker', it can mean a million different things depending on what specific area you work in.

 

quants do not have a professional body and are not regulated beyond whatever the FSA requires investment banks to adhere to (i.e. regulated via internal controls and guidelines on risk).

the term "quant" can be quite broad. they spend their time doing a mixture of research, c++ programming and modelling.

I think that the MSc will not provide a doorway into a front office quant position, although they might get into middle / back office positions supporting the quants.

ST5 is pretty much irrelevant to quants and ST6 really just scratches the surface. To be a quant you will also need to understand really nasty maths like how to solve non-linear pde's numerically and also be an extremely good programmer in c++ (their programming skills tend to be better than the average full time programmer!)

if you want to get an insight into the problems they are involved in, the wilmott forum is quite interesting:
http://www.wilmott.com/categories.cfm?catid=4

also they have a careers forum if you are interested in how to get in:
http://www.wilmott.com/categories.cfm?catid=16

 

Surely actuarial job is more relaxing and 'normal' than quant jobs... though I'd quite enjoy looking at more complicated models for an obscene amount of money!!

Financial engineer? No idea, but I'd imagine it's someone who constructs portfolios with certain risk characteristics.

 

Chances of an actuary becoming a Quant??

What do people think the chances are of a newly qualified pensions actuary becoming a Quant?

I have to agree that the maths used in the pensions actuarial world is very simple. As someone who did a masters in mathematics and wanted to continue using that high level maths actuarial work is very unsatisfying!

Any thoughts??

 

not that great. a while back i was told by a top bank that they would consider qualified investment actuaries for entry level junior quant roles (normally these require a phd).

 

******!

Why was I never advised of this type of job when I left my university! I guess I only have myself to blame

 

What about a part-qualified life actuary...would trying to get work in the investment world first provide a stepping stone to being accepted for a quant position or is this just wistful thinking?

 

this is just a generalization...... there are lots of different things you can do as a quant..... stochastic stuff, signal processing, programming, designing trading platforms, econimics, mathematics etc.

Also, a phd doesn't warrant that you will be able to do the work...... all it shows is you are able to do some research.

 

i'm not trying to suggest that actuaries are not capable of doing some "quant" work, but to get to a front desk position, there's an entry barrier - a phd.

the banks seem to be pretty obsessed with it from what i experienced speaking to headhunters a couple of years ago - maybe this is reasonable since quants are usually experts in solving pde's etc, which is not our usual area of expertise.