@Risk

Results of a new survey from 7city Learning show that over the past year, quantitative finance professionals (quants) and risk managers have increased their focus on risk management.

7city Learning, a global financial services training company, conducted the survey June, and polled respondents on the effects of the recent market turmoil on quantitative finance and risk management. Here are a few of the key findings:

• 61% of those polled said that they are being asked for more explanation than before around validation or explanation of their techniques.
• 95% felt that risk management was the same if not a greater part of their job. 36% felt that risk management was a greater part of their job.
• 55% of survey respondents reported that they are being consulted more on risk management issues, and 35% said that they are being consulted much more often.

The survey sample was comprised of a random sample selection of alumni from 7city’s Certificate in Quantitative Finance (CQF) course.

“The numbers illustrate that risk management is absolutely a crucial focus for financial institutions right now,” says Dr. Paul Wilmott, Course Director for the CQF. “As the financial services industry remakes itself, and scrutiny on risk management practices increases, quantitative finance professionals find themselves at the nexus of important change.  Quants must understand the application of mathematics to finance in a real-world situation in order to utilize true risk management – this is what we are aiming to teach students as part of the CQF.”

In an article earlier this year, Wilmott, one of the world’s leading financial mathematicians, says he had been warning about trouble in the banking system for years before the crash.

“Following the formulas was like relying on your seatbelt to drive crazily: it’s not going to save your life,” he says in the article. “People in risk management don’t know a fraction of what they should; they’re not skeptical, they haven’t tested the data or used their imagination to find solutions.”

Wilmott believes better modeling requires the integration of mathematics (which is precise) and human behavior (which is irrational).

“You can model electromagnetic waves: a mathematical model that shows molecules of air moving around a plane, making it fly,” he explains. “But in a financial model, you need more than numbers. The models in finance are not very good. In this field, it matters if you’re not psychologically synchronized; people don’t behave rationally. You can’t rely on people following equations. It’s half maths and half human.”