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Everyday science

Everyday science

‘Rocket science’: the facts

03 Jun 1999

A frequent complaint at gatherings of senior physicists is that that everyone with a PhD in theoretical physics abandons research to follow a lucrative career as a “rocket scientist” in the City. This is good, some senior figures argue, because it shows that theoretical physics can create wealth, which is important when applying for research grants. The exodus to the City is bad, others argue, because it means that too many bright people are leaving the subject. A recent report from the Centre for the Study of Financial Innovation (CSFI) in London confirms that there is a genuine and growing demand for physicists in the City, but that the numbers involved are relatively small. Would-be rocket scientists should also be aware that the City is only interested in the “top two per cent” of talent, and that interpersonal skills are more important than in-depth knowledge of finance.

The CSFI was commissioned by the UK’s Engineering and Physical Sciences Research Council to investigate the City’s requirements for postgraduate research and skills in financial engineering. Its report, the first to look at this subject, estimates that no more than about 100 PhDs go to work in the City as quantitative analysts – “quants” or “rocket scientists” – every year. This number is small but it is not insignificant: for instance, the UK’s research councils fund around 1500 new post-docs in science and engineering every year. However, significant numbers of physicists also find employment as IT specialists in the financial sector, and there is a growing band of physicists who work part-time in finance while retaining their academic positions (see Physics World January 1999 pp25-29).

Needless to say the financial rewards in the City are high. Whereas a post-doc in a university can expect to start on a salary of around £20 000, a quant “with a good PhD and the right personal skills can expect a starting salary of £35 000-£50 000, plus the same again in bonuses and perks such as a car and subsidised mortgage”. Nice work if you can get it.

The report has good news for postgraduates in science and engineering: “There is little doubt that the City will continue to demand PhD-level quants.” Moreover, the strongest demand will be for “people who have had a rigorous training in applied sciences (physics, engineering, etc), where the emphasis is on problem solving” rather than people who have specifically trained in financial mathematics. The report has even better news for physicists, especially those with skills in probability theory, stochastic calculus and partial differential equations: “Even though mathematical skills are sought, we found a strong preference for physicists over mathematicians. As one bank explained it: ‘Physicists want to find the answers to problems. Mathematicians have all the answers and want problems to solve.’ ”

One surprising fact to emerge is that “the process of placing PhD quants seems terribly wasteful. Banks report hundreds of applications for a single position – only to discover that the attrition rate among successful applicants is 50% or more”. The report recommends a programme of internships so that both sides know what they are letting themselves in for.

The report is refreshingly direct in places: “Put bluntly, the City is depressingly unenthusiastic about university research.” Or, as one US banker explained: “Academics are looking for market perfection, practitioners are trying to make a living out of imperfections.” One reason for the lack of interest in funding external research is that most banks are interested in the short-term development of new financial products based on existing knowledge.

The report makes clear, however, that there is a need for long-term research: “Despite its importance in the financial world, quantitative finance as a science is still in its infancy, and an enormous amount of research is required simply to underpin present developments, let alone those coming over the horizon.” The whole area of risk, for instance, is ripe for new discoveries, and offers pickings for the physicist, or anyone else, who can develop reliable systems to manage it.

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