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Ten Interview Questions for Aspiring Quants

Successfully navigating an interview for a quant job can be as much about explaining how you think as it is knowing the right answer. Techniques vary depending on whether you're seeking work at a hedge fund or an investment bank, or whether you're interviewing for a programming or trading role. Interviewing for an entry-level position may include questions involving everything from from mathematics to risk and computer modeling.Often you'll have to walk through a problem and how you arrived at a solution, or your methodology for measuring risk or building a financial model.

When it comes to quants, says Joanna Moody, North American recruiting manager at JPMorgan, the firm's process varies, with interviews less about standardized questions and more about a candidate's background and approach to problem-solving.

Here, then, are 10 questions you could be asked during an interview for an entry-level quant job.

1. Walk me through your thesis.

Moody says that JPMorgan tends to interview candidates with Ph.D.s and master's degrees, and being able to explain their thesis is a common question.

2. Walk me through a computer model and explain how you used programming language to write it.

You could be asked to explain the outputs that come from a model and how they impact trading volatility and trade variance. On the trading and risk side, the question measures your understanding of markets and the relationships between portfolios.

3. What does VaR measure?

Value at risk measures the risk associated with losses on a specified asset portfolio. It's the threshold in which the probability that mark to market losses on a portfolio exceeds this value over a given time horizon.

4. Why do price spreads exist in asset-trading markets?

Spreads are the difference between the price in which a market maker will purchase a security and the price that a firm is willing to sell it. It's commonly known as the bid-ask difference, and exists because market markers are trying to profit from every trade they make.

5. Describe your P&L?

A quant trader may be asked to quantify how much they've earned from trading, says Leon Devereaux, commercial director at NJF International. Those returns, he says, would need to be measured against the risk they've assumed in order to achieve them. For example, a firm would need to assess the profit and loss for a quant trader with a $50 million book compared with someone managing twice that amount.

6. What is the Sharpe Ratio?

The Sharpe Ratio measures returns over risk and is calculated by subtracting the risk-free rate, from the rate of return for a portfolio and dividing the result by the standard deviation of the portfolio returns. It tells someone whether a portfolio's returns are due to smart investment decisions or the product of high risk investments. The Sharpe ratio formula is important in positions such as high frequency trading. You may also asked to explain how you went about calculating it.

7. How are you with math?

Because quantitative work and Wall Street are numbers-intensive, you'll be asked to go into detail about your mathematical aptitude. Being well-versed in areas such as algebra, calculus, statistics, and probability are a must in securing a quant job.

8. What is Black Scholes?

Be prepared to show that you know what Black Scholes and other basics such as risk-neutral and call-put parity are. Black-Schole models price variation over time for assets such as stocks. They can be used to determine the price of call options. Risk neutrality lies between risk aversion, or a focus on safer investments, and risk taking.

9. What is the discount rate and why it is important?

Okay, you probably know this, but it's a common question, and not simply for fixed-income quants. The discount rate is the interest rate a central bank like the Federal Reserve charges banks and other institutions that borrow reserves from it. Its importance lies in its ability to determine the value of a bond. Bonds are valued by discounting the bond's expected cash flows to the present using the appropriate discount rate.

10. What door is the prize behind?

And finally, you may be asked to answer any one of many common, riddle-like questions that test your understanding of probability, involving coin flipping, playing cards, and eggs falling from buildings.

AUTHORScott Krady Insider Comment
  • Ma
    Mark Tompkins
    1 December 2010

    You'd be better served with a request like "explain your approach to efficient frontier modelling" or such.

  • ig
    1 December 2010

    I would assume quants get asked tougher questions.

    Yes, some of these could only be asked of quants, i.e., but some of these questions could be answered by people, a first year MBA, an undergrad in finance, or a math major working in risk:

    Finance 101:

    - discount rate
    - Black Scholes

    Finance 102:

    - Sharpe's Ratio


    - VaR

    If one had to go into the underlying theory and detail, it might give most pause, except for quants, but as presented, light work.

  • Da
    Dawson Lodge
    1 December 2010

    Unfortunately the basic premise for all this
    is deeply flawed and virtually useless. The
    idea that econometric formulas can measure
    and ameliorate risk has been discredited
    (1987, 2000 -2003, 2008).

    Unknowable risks exist and fat tail events occur with
    great regularity, so a demand for precision is
    a mugs game. Better to bet that there is something
    you haven't accounted for, and adjust money mgmt
    and exposures accordingly.

    Don't tell me that the market can't be timed either.
    Momentum has merit but you better have adjustable
    cycle parameters.

  • Sr
    1 December 2010

    Most of these answers display lack of familiarity on the respective subject.
    Why would you write an article to expose yourself like this?

  • ph
    1 December 2010

    These questions are very superficial. I don't think a serious employer will use those. Maybe 5 years before, they are suitable questions

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