Interview questions you may or may not experience but must be ready for.
This document is intended to provide a preparation framework ahead of interviews for junior quantitative analyst (financial engineering) positions. It is not meant to be exhaustive and more in depth reading should be undertaken as part of the preparation process.
For an overview guide of the responsibilities that a Financial Engineer can have, please ask us for a copy of “Quantitative Research.” In summary, Quants are typically expected to get involved with the mathematics and implementation of models for pricing of derivative instruments. The focus of what a Quant does really depends on the nature of his/her role, but invariably the need for a deep fundamental understanding of both maths and programming is key.
2) Basic Maths:
It has been mentioned by a number of our clients that the failing of many junior candidates they interview is their lack of ability to solve problems using the fundamentals. For example, whilst over 90% can apply Ito’s lemma in the context of Black Scholes to calculate the price of an option where a stochastic process is involved, over half of these people are not able to solve it as an ODE once the stochastic component has been removed. This suggests two things;
(i) they have merely learnt the solution by memory; and/or
(ii) they are only aware of standard methodologies;
without understanding the fundamental mechanics of the model. What clients are looking for at the entry to 2 year level is strong competency on the basics and strong (almost intuitive) mathematical and logical problem solving skills that would suggest that in the future you will be capable of learning the difficult and complex processes applied to harder problems. If you slip up on the basics it’s difficult to judge your potential of coping with the more challenging products or indeed your longer term potential to bring innovative ideas to the forum. We would therefore suggest that prior to interview you spend at least 40-50% of your time consolidating your understanding of basic math applicable to quantitative finance – see Table 1. (30-40% of your time should be spent programming (C++), and the rest learning about the products and their structures. Refer to Figure 1 for a revision summary).
|Table 1: Areas of maths that are fundamental for a Quant interview Calculus:||Functions of a single variable: o Ordinary calculuso Ordinary differential equationso Solution methodso Basic numerical integrationo Simple integral equations||Functions of two or more variables: o Partial differential calculuso Partial differential equationso Classificationo The diffusion equationo Solution methodso Basic numerical methods||Matrices: o Matrix manipulationo Eigenvalues andeigenvectorso Exponentiation|
|Series/ sequences:||o Taylor serieso Maclaurin Series||o Convergence Tests|
|Probability/ Statitics:||Elementary probability theory: o Distributions, discrete andcontinuouso First and second moments(mean and variance)o Higher moments (skew andkurtosis)
o Important distributions
o Several variables
o Central Limit Theorem
|Elementary statistics: o Data representationo Regressiono Confidence intervalso Hypothesis testing||Random walks: o Trinomialo Transition probabilitydensity functionso Deterministicequations from randombehaviour