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April 1998
Purdue program aims to put physicists
on Wall Street
WEST LAFAYETTE, Ind. -- A hybrid master's program in finance and science at Purdue
University could put physicists to work on Wall Street and has caught the attention
of financial firms.
Purdue's computational finance program is the first to include physics in an interdisciplinary
curriculum designed to produce graduates who combine high-level calculation skills
with an understanding of business and finance. Graduate students in the two-year program are only in their second semester at the West Lafayette campus, and the
program is not yet an official master's degree, but already their career prospects
look bright.
"Although our program is still in its infancy, we have already been contacted by Wall
Street firms about the availability of our students," says Andrew S. Hirsch, head
of Purdue's Department of Physics. "Wall Street has long courted physicists, because
they possess a particular set of computer modeling and problem-solving skills that seem
to work in the finance industry. It's not that other math disciplines don't teach
the skills, it's just that physicists seem to have the right combination of them."
Purdue's program consists of economics and finance courses from the Krannert Graduate
School of Management and math, modeling and programming courses from the Departments
of Physics, Mathematics, Statistics and Computer Science. Students spend two semesters learning the theoretical and computational aspects of option pricing, and two semesters
applying their skills toward solving real-life risk management problems through internships
and research projects. Plans are moving forward to formalize the courses into a master of science degree in computational finance.
Charlene Sullivan, associate professor of management who is one of the coordinators
of the new program, says the new degree makes sense for Purdue.
"We are uniquely positioned to offer this program because we already have in place
some of the most stringent math requirements of any business school in the country,
and when you combine those courses with others from the departments of math and physics,
the results are wonderfully marketable skills," she says. "There's always going to
be a need for someone to explain this stuff and to make earnings and economic forecasts
even more accurate. The person who can not only calculate risk, but also can talk
the financial language of the trader or consumer, is the one who will get the job."
Sullivan says financial firms are always creating new types of securities to meet
consumer needs, "so there will be an abundance of jobs in new product development
and support."
A.J. Lindeman agrees. He earned his Ph.D. in mathematics from Purdue in 1997 and works
for the risk management group in the New York office of investment banking firm Morgan
Stanley. Lindeman uses computer modeling to calculate his company's credit risk into the future. Credit risk, he says, has become a hot button on Wall Street because
of the role deteriorating credit quality played in the Asian financial crisis.
Because the credit model covers products that depend on various market variables such
as interest rates, equities, commodities and exchange rates, knowledge of these markets
is necessary for his kind of work. Although Lindeman graduated from Purdue a year
before the new degree program began and is a self-taught business mathematician, he
did take a semester of option pricing in the School of Management and found it helpful.
"I could begin to see how business people think about these things," he says. "Often
in a business meeting people express themselves in what sounds like garble to a mathematician.
I began to realize that it's the language of finance courses."
Lindeman says degree programs such as Purdue's will serve a growing need.
"There is a huge demand for quantitative types on Wall Street these days," he says.
"And with so many new financial products being introduced, the market is wide open.
Although the math I use every day isn't as sophisticated as that of my doctoral thesis,
an advanced degree and some exposure to economics is crucial to being able to think
about the long-term implications of a project. For example, figuring out the credit
risk for derivatives -- a financial contract whose value depends upon the price of
an underlying asset, such as a commodity, bond, equity or currency -- requires the consideration
of market movements for up to 10 or more years, depending on the length of the contract.
Those are exactly the kinds of mathematical skills people with a computational finance degree can bring to the Street."
He says communication skills also are important, because research results and calculations
must be articulated to real people, such as traders or brokers and, "you can't talk
in symbols."
The Purdue program creators had several models to look at when designing curriculum
for the new computational finance degree. Colleges offering similar programs include
the Massachusetts Institute of Technology, Carnegie Mellon University, Columbia University, Cornell University, the University of Michigan and the University of Chicago.
Niels Nygaard is a professor of mathematics at the University of Chicago and director
of its master of science in financial mathematics program. The one-year program,
now in its second year, was the first of its kind in the country to originate from
a math department.
"The first graduates of our program were very well received in financial firms all
over the country last year," he says. "Because many of our instructors are from the
financial services industry, our students have a chance to deal with real-life examples
of how to use their mathematical skills in a career."
Sources: Andrew Hirsch (765) 494-3000; e-mail, hirsch@physics.purdue.edu
Charlene Sullivan (765) 494-4382; e-mail,
sullivan@mgmt.purdue.edu
A.J. Lindeman (212) 761-7285; e-mail,
lindeman@ms.com
Niels Nygaard (773) 702-7391
Writer: Kate Walker (765) 494-2073; e-mail, kate_walker@purdue.edu
Purdue News Service: (765) 494-2096; e-mail, purduenews@purdue.edu
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