What does an applied mathematician/physicist do in a bank/insurer?

[Tosh5457]

Hello, if I take a master's degree in mathematical finance, what would I do exactly in a bank? And what about in an insurer?

Would I be making mathematical models? Don't banks and insurers already have the mathematical models they need?

 

[Mépris]

http://www.finmath.rutgers.edu/home/Why_Students_Of_Prof_ElKaroui_Are_In_Demand.pdf

Check this out. Maybe you will find it interesting.

Another interesting thing I've found is, a few people, (those already in the business) tend to say that a Financial Maths degree isn't necessarily the best way to go. Mainly because it teaches you what's hot right now and that alone and maybe in ten years it won't be useful at all. Conversely, an applied math MS (or something else), while being more general, would be more useful.

Anyway, I agree with that and those who're saying should know what they're on about. I don't know whether the people who hold this opinion have a financial maths MS or have another background altogether.

I'm interested in knowing more about this financial maths MS as well. Two of the schools I'm interested in have the El Karoui course...

 

[Locrian]

I'll only be commenting from my knowedge of the insurance side of this question.

Hello, if I take a master's degree in mathematical finance, what would I do exactly in a bank? And what about in an insurer?

I'm never sure - is an MA in mathematical finance the same as one in Financial Engineering? I thought they were different, but am not sure how. I get the feeling it varies significantly between institutions.

Would I be making mathematical models? Don't banks and insurers already have the mathematical models they need?

Well, the world changes fast, and you need new models to adapt to it. Nearly all of the financial engineering at insurance companies I'm familiar with is on the Life side, firstly because they have longer time horizons on their reserves and secondly because their new products (newer variable annuities, etc.) require more advanced techniques to price. However, there is an increasing amount of this done in the property and casualty area; I'm not sure if your degree would prepare you for that.

Frankly, I'm a little suspicious of the value of these types of degrees, and I hear that suspicion echoed from many people in many different areas of finance. If you can't get into a very top school then it best be on the universities dime, because it isn't worth yours.

 

[twofish-quant]

Hello, if I take a master's degree in mathematical finance, what would I do exactly in a bank? And what about in an insurer?

The question you are asking is different from the title. I would strongly recommend people that have an interest in math and physics *NOT* to get an MFE if they want to work in finance. There are a dozen different jobs and a dozen different degrees that will get you into one of the jobs. You can get a finance job with a masters or Ph.D. in pure mathematics, applied mathematics, computer science, statistics, physics, engineering, finance, business administration, actuary science, accounting, etc.

The problem with an MFE is that it's extremely specific. If you get an MBA or a masters in statistics or applied mathematics, and it turns out that you can't find work in an investment bank, then you have a lot of other options. If you have an MFE, then you don't.

The only reason I can think of getting an MFE is if you have a bachelors degree and if the career services in the school is particularly good. Even that is difficult to tell. You have MFE programs with high placement rates, but the term placebo degree comes to mind, because in a lot of situations, the MFE program gives someone a job they could have gotten without the MFE.

Also, MFE programs know this, so if you look closely they've been restructuring themselves so be somewhat broader.

Now as for what people with MFE's do, There are a dozen different jobs but a lot of them boil down to "data shoveling." in an agricultural society, people shoveled dirt. In an industrial society, people shoveled coal. In a post-industrial society, people shovel data. So a lot of what you end up doing is dumping out data from a database, putting it into an Excel spreadsheet, and writing a report from the numbers.

Would I be making mathematical models?

With an MFE. Probably not. You might be reviewing and implementing models. Most of the work of model work and model design is done with people with Ph.D.'s.

Also, let me point out that there isn't a rule that says you can't get into model design if that's what you want to do. It's just that people that end up interested in creating models tend to be people that end up getting Ph.D.'s anyway, and people who do masters degrees rather than get Ph.D.'s because they aren't obsessed with doing research in academia, tend also not to be that interested in doing it in industry.

Part of it is that getting a new model into production is a long and painful process. Sort of like writing a doctoral dissertation.

Don't banks and insurers already have the mathematical models they need?

The world is changing and there is a lot of new stuff, and stuff that we don't understand.

To give you an example of something that I know people are thinking about. The country of North Elbonia has an active market in Yak futures, but unfortunately, the government of North Elbonia will not let foreign banks in. However, in the last six months, the North Elbonian government has given a few licenses for foreign banks to trade yak futures. Now it turns out that the bank already has a yak future business in South Elbonia, and it turns out that you can figure out the price of South Elbonia yak futures by looking at South Elbonian sheep futures. However, North Elbonia does not have a sheep futures market. There is a tiny goat futures market that *maybe* is interesting. It doesn't help that North Elbonia and South Elbonia have different currencies, and the NE dinar is not convertible.

So what do you do? You get a dozen math, econometrics, and physics Ph.D.'s to think about the problem.

 

[Matrix0]

As an applied mathematician/physicist, your role in a bank or insurer would be to use your expertise in mathematics and physics to analyze and solve complex problems related to financial risk management. This could involve developing and improving mathematical models and algorithms to assess and predict financial risks, such as market fluctuations, credit risks, and investment strategies.

In a bank, you may work in a variety of areas such as trading, risk management, or investment banking. Your responsibilities could include developing and implementing quantitative models for pricing financial products, analyzing market trends and data to inform investment decisions, and creating risk management strategies.

In an insurer, you may work in actuarial science, which involves using mathematical models to assess and manage risks related to insurance policies. This could include calculating premiums, analyzing mortality rates, and determining appropriate reserves.

While banks and insurers may have existing mathematical models, there is always room for improvement and innovation. Your role as an applied mathematician/physicist would be to constantly refine and enhance these models to better assess and manage financial risks.

Overall, a master's degree in mathematical finance would provide you with the necessary skills and knowledge to excel in a bank or insurer, where your expertise in mathematical modeling and analysis would be highly valued.