Quest for MFE Completed!! (03/16/2007)

so what really happened?

2007-08-14T19:21:00.000-07:00

So here is my quick and dirty analysis (my keyboard is not working well - so cant write details):

1. Subprime loans were made to folks who never should have gotten them - sub par FICO scores, no income, no doc, 0% down... comon!! (2006 vintage was esp bad - you know, like rotten wine)

2. Home prices (on a national level) nose-dived for the first time since great depression - leading to massive defaults. Why does the subprime guy care - he leaves the keys with the bank and drives away in his truck - his home just lost 10$ of value - he has -ve equity, and he cannot refinance!

3. HEL deals had a capital strcuture - 0-5% equity, and above it sat the ignominious BBB- bond!! (ah here comes the catch). The losses (historically below 5% were now being projected in the 10 to even 15% range. The BBB- bonds were toast...

4. All this would have been still ok - i mean about 30bn losses...

5. But enter the ABS CDO market (a 250 bn issuance market), which recycled the BBB- bonds into another tranched product - if your underlying bonds are toast - guess what happens to even highly rated tranches? Result- ABX indices skydive like there is no tomorrow. (go to Markit website..)

6. Who's to blame - i think... the rating agencies (who made a bundle before all this mess).

so what does a strategist do??

2007-06-24T15:54:00.001-07:00

A lot of people have asked me to describe the strategist's role - well, it all depends. It depends on the shop, the product area, buy vs sell-side. But this interview on e-financial careers may give a bit of a guide (although its on equity side, but still pretty good).

This week WSJ gave some very good articles on the subprime mess that Bear managed to get into...also a basic intro to CDOs.

Dinner with Jim Simons (well, along with 20 others)

2007-05-24T12:26:00.000-07:00

Due to some incredibly good luck (cant delve details :)), I was invited to the post IAFE dinner/cocktails (and now why don't I carry a camera when I need it?). I had the good fortune of meeting some incredible folks - first off, of course, Jim Simons (who absolutely blew me away with his humorous and candid speech which he gave during the conference - oh, and what a refreshing personality - for some one who netted close to 1.6Billion (yes ..you read that correct) last year as part of his hedge fund!!), Mr. Richard Bookstaber (no pun on his last name), author of a new book on perils of financial innovation (which I had ordered a week ago on amazon), and other interesting hedge fund managers and IAFE directors. It was a great evening - especially, for a newbie like me!! Jim is definitely an inspiration for all aspiring FEs - in a way, he is like a modern day Buffet - someone who challenges the old paradigms and ushers in a new way of doing things. One bad thing - he doesn't believe in hiring anyone from Wall Street, just Scientists. Oh well :(

Earlier, the IAFE conference also featured interesting talks by Andrew Lo (MIT) on the psychology of trading (really interesting stuff) and some more talks on hedge funds. I had attended this conference last year as well , but I thought it was more well attended this year. I also ran into a bunch of MFEs, both from my class and previous batches.

Earlier (around 7.00 A.M.), I was struggling to find a suit for this conference (my movers have not yet brought my stuff). I was about to show up in my jeans..but with another stoke of good luck - a friend from the bay area who was traveling to NY told me he could lend me his formal clothes and shoes. I made a quick detour and presto - I was not embarrassed!!

and ...

2007-05-19T16:33:00.000-07:00

I finally made the move - from sunny california to New York. I begin work in a few weeks - so right now have some time to settle in and get used to the new york - jersey accents.

WSJ had an interesting article on the whole subprime mess (subprime now sounds like a cuss-word, is it really that - or have investors simply over-reacted? Where is the value now..)
Subprime Business Now

Also, Monday features an interesting IAFE conference (yay!! I can actually attend those seminars now that I am in the city) - featuring the true giant of the field - Jim Simmons. I am looking forward to lecture..

Class of 2007!!

2007-04-24T18:01:00.000-07:00

Thought this picture paints the more than 1000 words that would describe our feelings that day - lets summarise in one word - RELIEF!!

p.s.: I apologize if this picture is bound by some legal copyright stuff. Let me know and will remove it!!

Career progression for FEs

2007-04-06T12:59:00.000-07:00

Attended a good event at Haas yesterday, focussing on Career paths. I found it interesting, even though I feel like I know some of it by now..But some things that stuck with me were:

Buy side has fewer designations, and the org structure is more like a rectangle than a pyramid...
Speakers when asked what made people successful in finance, indicated - "fire in the belly" (which is really true IMO), whether you are an "innovator" or a "replicator" (both are important, but the first cannot really be taught in school - either you have it or you dont), and a good bit of luck too!!

shameless plug!!

2007-03-20T19:04:00.000-07:00

Just saw a cool article on the Haas MFE program in FE news. I has spoken to the author a few months back about the program and was pleasantly surprised to see some comments by yours truly in the article!!

And now...?

2007-03-18T21:06:00.000-07:00

I have been chewing on what to do about this online diary - a medium which let me jot down some memories from this rollercoaster of an year!! Finally, it dawned on me - I need to continue this journey (as someone at the graduation said, this one year showed us in great detail about how little we know..). I need to keep on learning about topics in quantitative finance - and subsequently maintain this journal - maybe not with the weekly updates - but surely with 1/10th the gusto I did earlier (famous last words).

Another things I wanted to mention. A lot happened in this year - I made a transition from engg. consulting to capital markets; I made some amazing friends in my classmates; I learnt some cool stuff from some amazing professors; and most importantly - I finally learnt what makes Berkeley special.

It's the Cal attitude, Yo!!

I mean, everyone I know at Berkeley - are seriously exceptional people - smart and driven. But even then, there are no airs about anyone of them. I think the Cal attitude defines this - be smart, but be humble as well. After all, this place has some seriously gifted people - at Haas, ..and at other departments (some top ranked departments in sciences and engineering). Yet, something about the University makes the people realize - that they need not take themselves so seriously, that they cause alienation with folks who work with them. This is a small something for me to hold on to.. alongwith the MFE degree that I picked along the way!

Go BEARS!!!

Week 52 - Finito!!

2007-03-15T09:17:00.000-07:00

The finals were turned in - the ABS final (take home) and the behavioral final on Wednesday. Went to Jupiter's to unwind after a hectic finals week! And today morning, I felt a bit weird - there isn't a thing to do - This is just not happening - could it be, ...that its all over!!

weeks 50/51

2007-03-07T00:13:00.000-08:00

The last 2 weeks were probably the busiest of the quarter - especially Friday, when we had to turn in the AFP project writeups (we had a social afterwards to unwind...). This week, some of my classmates presented their work - some really top notch presentations on current problems in quantitative finance..

we also did a CMBS pricing project for the ABS course - basically, we implemented an emprirical default model for CMBS using loan level data...and found some really interesting features inherent in that market..

Next week..it will all be over - finals for Q4 and graduation on 16th!!

Meanwhile, New index based derivatives come on market - basically a good way to hedge against propert prices - incidentally we used the NCREIF indexes to proxy CMBS property prices and to find correlations..

of bonds and raiders

2007-02-22T18:56:00.000-08:00

After securitizing David Bowie's music and cat bonds, I guess there was a dearth of assets for securitization. Behold the new "death" bonds (as an aside, reminds me of death metal which I unwittingly subjected myself to some distant time ago - the effects are for everyone to see..). Bottomline: Insurance-linked securities are here to stay..

We just had an announcement about our commencement speaker - it would be Aaron Brown. I dont think I have read his book - but I guess it would be on my to do list as I take a break after MFE for 2 months. cool website name - eRaider!!

Aaron Brown is an executive director in risk methodology at Morgan Stanley. He is the author of The Poker Face of Wall Street (Wiley 2006) on the interaction of gambling and finance, which was listed among the ten best books of 2006 by Business Week. His corporate governance website, www.eRaider.com was named Best of the Web in Theory and Practice of Investing by Forbes. In his 25 year career he has worked as a trader, portfolio manager, head of mortgage securities, risk manager and finance professor. He holds degrees in Applied Mathematics from Harvard University and Finance from the University of Chicago. He serves on the editorial board of the Global Association of Risk Professionals, writes a regular column for Wilmott, is a member of the National Book Critics Circle and speak and writes frequently on quantitative finance and risk management.

weeks 48-49...

2007-02-21T08:00:00.000-08:00

The countdown to week 52 has begun...

well, before that I need to turn in my finance project and ABS project (pricing a CMBS deal). These are going to take up my next 2 weeks!!

This weekend, spent some time learning about the hjm model - the non-math primer is here. For more implementation issues - the excerpt from Wilmott's book is quite valuable.

weeks 46-47!!

2007-02-10T15:59:00.000-08:00

This quarter can be summarized into one word - ABS !!
Each ABS hw is like a mini-project. In the last hw, we had to fit a term structure model, fit two prepayment models, and then price tranches of CMOs based on 2 mortgage pool cash flows, as well as calculate duration, convexity and OAS measures!! This is basically recreating the MBS models on the street (well, maybe not at that level - but close).

This week there were also these talks of mergers between exchanges - Read an interesting story on this. I hope this excerpt proves to be correct:
Years from now, this decade might come to be viewed as the golden age of high finance. New markets are sprouting up everywhere, drawing huge amounts of capital and helping hold down rates.

Tale of two cities..

2007-01-31T00:06:00.000-08:00

Businessweek has an article comparing the two heavy-weights of financial domination - amusing!!

troubled subprime markets..

2007-01-27T12:01:00.000-08:00

Interesting article in WSJ talks about rising default and deliquency rates in subprime market. Excerpts:

The weak U.S. housing market has cut the value of some homes to below the amount the owners owe on their mortgages, making them prone to default. The risk is showing up in the subprime-mortgage market, which serves borrowers with the worst credit histories. Default rates in this market are rising.

Friday afternoon, the ABX-HE 06-2 index for buying protection on low-rated, or BBB-minus, subprime mortgage bonds stood at 90.34, down from 95.25 at the end of December and 98.2 at the end of November. It was the lowest level since this version of the index began trading in July. A decline signals that sellers of these insurance contracts are demanding larger payments to compensate for what they see as a higher risk of mortgage defaults, which would reduce the value of mortgage securities.

When home prices are rising rapidly, people who fall behind on their loans often can sell their houses for enough money to pay off their debt or else refinance into a less costly loan. In a weak housing market, it becomes harder to sell homes quickly or refinance. More people lose their homes to foreclosure.

week 45.. end of job search!

2007-01-23T07:25:00.000-08:00

Yes, it is all over at the job front - have accepted an offer from a reputed I-bank. The work deals with ABS related structured products - so the current class on ABS is of course the most relevant for me. This led me to think about doing a 3-credit project for the "Applied finance project" (one can do a smaller project for 1 credit or a more involved one for 3) - just because I believe one learns more if "forced" to do a project - you read up more on the subject than any course you can do. So goodbye "real options" - I think you are a great technique but it would be a good "option" for me to learn about you later on in life.

In other news, I was saddened to hear that FENEWS has decided to close shop due to production costs issues - comon, you successful FEs (DE Shaw, Jim Simmons) - throw a couple of your spare change (read millions) at this publication - it is indeed an excellent resource on Financial engineering - the fact that it is closing shop doesnt bode well for the field!

weeks 43/44..

2007-01-17T22:09:00.000-08:00

week 43 was my last week in NYC.. spent it interviewing as well as sightseeing. But it sure was nice to get back to California.. dont get me wrong.. while I enjoyed NYC, California (esp bay area) has a special feel for me, after all it was home for the past few years!! The sun keep me happy, I guess...

Week 44 - T4
4 courses - I am not taking dynamic asset mgmt..
other are
-ABS (really cool course - very relevant in the job mkt)
- real options
- behavioral finance (nice prof., very interactive class)
- applied finance project

week 42..

2007-01-05T08:53:00.000-08:00

- Great article on Quant strategies at BGI.. (courtesy bloomberg)

- Last day of internship.. completed and filed projects and now looking forward to relaxing for a week in NYC and nearby areas.

- Another of my classmates Charles's blog - look out for the cool photos!!

Perks of internship...

2006-12-28T16:46:00.000-08:00

Have to say that due to some bad planning on my part, I got to stay in 3 neighborhoods of manhattan during my internship. Well, it turned out to be good, as I got to see very different scenes of the big apple..

First up, Chelsea - near the very famous chelsea hotel, wiki tells me that its had hosted quite a few "bohemians" in its lifetime - Bob Dylan, Hendrix, Stanley Kubrick, Mark Twain...etc. It was quite convienient, close to 2 subways, close to a lot of restaurants and "whole foods"!! 2/5 stars

Next up was Murray Hill, right next to that building you may heard of - Empire state! I liked the apt here..it was being shared with the owner's cat. It was quite interesting since I never had a cat as a pet before. Close to almost everything - Madison square garden (where I saw a Knicks game), shops galore with the worlds largest Macys nearby, and good places to eat! 3/5 stars

3rd stop - East Village - this is an amazing place to live and lots of things to do!! Young, trendy, lots of students, artists, etc. I love this cool italian coffeeshop close to where I live. Just around the block or two are bars with names like "thirsty scholar".. Another crazy thing I saw here is the automat - a vending machine/restuarant that serves hot and fresh food!! 4/5 stars

Knicks game

Murray Hill

Museum of natural history

week 41..happy holidays and .. Mortgage backs

2006-12-27T07:00:00.000-08:00

In anticipation of the asset backed class next quarter, i found this WSJ article informative. Here are the key issues:
Next year, some of the same forces that helped mortgage bonds do well in 2006 -- low volatility, continued buying from banks and overseas investors -- are expected to remain in place. Mortgage bonds are expected to perform well, though it will be harder for the market to log the same amount of excess returns over Treasurys.

If the 10-year Treasury yield -- the baseline from which mortgage rates are priced -- were to drop toward 4%, "you have mortgage rates low enough to entice more refinancing into the system," says Scott Kirby, portfolio manager for RiverSource Investments in Minneapolis.

Refinancing is bad for mortgage bondholders as their bonds get redeemed early, leaving them with funds to invest in a falling interest-rate environment.

In that case, volatility would likely pick up as mortgage-bond investors scramble to adjust their hedging strategies by buying options.

39-40..

2006-12-18T06:55:00.000-08:00

Today's WSJ carried a good article on Ford's new debt raising..and discusses convert-arb strategy.

One reason for the recent drop in the share price is Ford's issuance earlier this month of $4.5 billion in unsecured bonds that can be converted into its shares, part of the $23 billion in debt issued. The offering was snapped up mainly by "convertible-arbitrage" investors who sold Ford shares to hedge their exposure to movements in the stock price, according to people familiar with the deal.

Convertible-arbitrage allows investors to profit from movements of convertible bonds against other securities. It often involves trades using credit-default swaps, which are derivative contracts that protect buyers in the case of a bond default. Investors also can hedge against a decline in the price of a convertible's underlying shares, as in the latest Ford case, by selling shares in the open market. The more movement there is in the issuer's securities, the more opportunity to trade.

weeks 35-38

2006-12-08T10:31:00.000-08:00

Things are heating up at work - the projects now have a deadline on the horizon and the days are getting longer!!

Nothing much to report..It is biting cold in New York but company holiday parties bring some cheer..and there ia also a Haas event in New York coming up!!

MFE Career Series

2006-11-18T16:14:00.000-08:00

In the next coming months, I intend to lay out some job functions/roles/departments that most MFEs get hired for. In my experience, most MFEs are career changers, and as soon as they get to school, they get so busy with the stochastic calc and econometrics stuff, that they sometimes dont have time to research all the job functions.

In this series, I would try to pool some collective knowledge that I have gathered from both from my end as well as talking to alums and my classmates. I think this would be useful to me as I decide for my own full time position, as well as to those contemplating (or entering) MFE programs. Disclaimer: this is just my own set of perceptions..please take it with some amount of uncertainity.

The topics briefly would be:

Quant positions (on the floor) (Quant, Quant Trader)
Research/Strategy (Strategist, modeler, Research)
Risk Management
Buy side (portfolio mgmt, buyside research)
Trading Positions (Trader, Trading Assistant, Junior Trader, etc)
Structuring
Sales (??)

Will try to post on this series when I get back to school!!

WSJ mentions MFE ..

2006-11-14T19:11:00.000-08:00

An article on quant financial programs appeared today in WSJ. Here is the link.. Quite informative.

weeks 33/34...Nobel Laureates and more!!

2006-11-11T16:31:00.000-08:00

2 more weeks into the internship. Things are looking great..am working on many aspects of fixed income and learning about new products and strategies.

The other day, I had a chance to go to a very interesting seminar hosted by National Academy of sciences - featuring some very prominent speakers - Robert Engle (of the ARCH fame), Derman, D. E. Shaw (yes it's also a fund, run by guess who?), and so on. Heard some really interesting views on volatity, statistical mechanics, econophysics, and so on. Some tidbits:

Returns are non-gaussian. Large events cluster together. One of the speakers (Eugene stanley) used high-frequency data (TAQ) to show that the data actaully follows an inverse cubic law.
ARCH models give forward measure of vol. Vol is low in bull markets and vice versa. (why??)
Dr. Engle talked about his new book (in works) : "Anticipating correlations".
Doyne Farmer talked about using agent based models for behavioral models.

Later, at the reception, I had a chance to talk to Dr. Engle, who was so accessible to talk to....I never realized for a moment, that I was in fact talking to a Nobel Laureate. I later had also a chance to meet my good friend - Aloke (read more about this on his blog!!!) from NYU. We chatted about life, work and of course, how our classmates are faring in what seems to be a bull job market! As Borat says - "Nice!!"

In other depressing news: Cal lost to Arizona!! This was just not expected.. oh well!!

31/32 .. I am in a New York state of Mind!!

2006-10-24T18:36:00.000-07:00

It seems like forever, eventhough it's just been 10 days. This probably is the first time I have lived in a real city (not suburbs that is)..and New York blows everything away. The city is alive no matter what time, .. the subways, the skyscrapers, the pace, the food... is exciting and refreshing. I may not been saying this once the cold weather kicks in!!

With 28 classmates in NYC too, there has been no time to feel alone. There have been a couple of get-togethers with one more planned for this Friday at the NYU SIAM finmath fair. It has been overall exciting talking to everyone about their experiences about the internships and in general living in the city...

Visitors alert: MetroCard 30 day pass rocks - unlimited subway and bus rides (for $76.00)..great value.

29/30.. end of T3.. 3/4th of MFE over!!!!

2006-10-12T19:18:00.000-07:00

Quick : whats Basel 2's take on credit risk?? Or how about the relative merits of Delta-normal or MC valuation for Risk mgmt... these were the questions we pondered over drinks as we wrapped up the 3rd quarter. At the end, it did feel strange to be all done (with the quarter that is..).

The weeks leading upto this was extremely busy - some highlights - we worked on an excellent project for "SAF" course on emission credit trading .. got to know a lot about how the Kyoto protocol has created a formal mechanism for earning these credits.

So.. I get a big break .. all of 2 days.. and report to work on Monday!! Looking forward to this new career...

Amaranth and Hedge Funds’ Hidden Risks: The Future for Investors - Yahoo! Finance

2006-10-02T17:19:00.000-07:00

Amaranth and Hedge Funds’ Hidden Risks: The Future for Investors - Yahoo! Finance

27/28...

2006-09-29T12:53:00.000-07:00

This week was one of the most intense. When two major projects are due in the same week, complete with presentations and reports, and add to it - company presentations and interviews, it can be an super-charged sleep-deprived combination.

First up, ACF project involved looking at pricing a double barrier option. We looked at quite a few variations including this one shown below - a Bermudan option with discrete sampling of the barrier. The 3d plots make this look really cool - but the technique is exceedingly simple yet very effective.

Bermudan with discrete sampling of the barrier

The other project was implementing a reduced form model for the Credit modeling class - we implemented a simple model with deterministic hazard rate function. The CDS term structure from that model are shown below.

Term structure of CDS premiums as a function of EDF buckets

In other news, I am getting ready to pack my bags and head out to my internship in a couple of weeks.... cant wait to get start going to an office again! (j/k)

2 big games

2006-09-23T20:55:00.000-07:00

NCAAF - Arizona State Sun Devils/California Golden Bears

Unbelievable day at College football. Cal crushed Arizona state easily. But the bigger game was the real "real" close game between ND and Michigan State.. I couldnt believe the Irish pulled it off in the last quarter needing 2 TDs in the last 7 minutes!!

How I became a Quant...

2006-09-22T15:42:00.000-07:00

TOP STORIES: Events in Chicago, Berkeley

"How I became a Quant" event returns to Berkeley on Oct 2nd..I found this very useful last year before starting the MFE program.

week 26.. Football

2006-09-18T22:00:00.000-07:00

The weekend was too much fun - first off..my first football game of the season at Cal Stadium (against a pathetic Portland state team). However, it was great to watch the game with the rest of the class - cant forget those massive subway sandwiches. In all a good time..

Cal Stadium

Stadium view from outside

This week and the next promise to be the worst of the quarter - 2 projects and a midterm and a couple of homeworks thrown in for good measure.. and oh, some company presentations as well.

week 25...

2006-09-08T14:31:00.000-07:00

Call Option using Finite Differences (explicit scheme) (as part of hw for ACF course...)

This week was a bit mellow. The big thing was a presentation due for SAF course, where we had to price a "Human Capital Contract" (a sort of a student loan, except the payment is tied to the future income of the student..). The interesting analysis involved projections of MFE grad salaries over the next 10 years (accounting for economy cycles..). Similar contracts are already in place by companies like MyRichUncle, Lumni, etc..

week 23/24...and football

2006-09-02T06:18:00.000-07:00

Things are heating up, but after 2 terms, I have begun to fall into a sort of rhythm in terms of coursework. You learn to work in teams and leverage off others..

Last 2 weeks, we discussed a couple of interesting HBS case-studies on Citicorp (weighing pros and cons of issuing eurodollar FRNs with special features) and Walt disney (using swaps to cover currency exposure). In SAF (sucess and failure) course, we read some chapters of Shiller's book on new financial order....a cornucopia of new ideas for uses of financial engineering.

In other news, Cal football season is kicking off... with some of us planning to go to couple of games before internship period starts.... my loyalty, however, is divided between Cal Bears and the Fighting Irish ..

Shoutouts!!

2006-08-23T19:52:00.000-07:00

Quant Recruiter : News, advice from a Front office Quant recruiter...
Bankers Ball: where bankers come to party!!
QUANTster blog: quant finance events...

will try to add these to links section soon!

Week 22.. T3

2006-08-17T09:58:00.002-07:00

T3 is incidentally not the new Arnie movie..it just stands for Term 3!!

T3 has officially started.. and we have had a full week of classes. Risk Mgmt is fun..some of it is similar to the work I did before the MFE program, albiet now applied in a different context. It is interesting.. and the prof. has literally written the bible on VaR.. Some good resources on VaR can be found here.

The 2 classes I am going to enjoy this quarter take a break from the math and modeling, and are very "B-school-ly".. with case studies and discussions. These are - "design of securities" and "success and failure in financial innovation". For eg., yesterday we had a lively discussion on Drucker's Innovation paper, to see how innovation is brought about in different indutries.

How a Formula Ignited the Market ..

2006-08-08T11:57:00.000-07:00

Extremeley interesting WSJ article on Copula Models...!! Enjoy :)
WSJ.com - How a Formula Ignited Market That Burned Some Big Investors

Week 20 - end of T2!! Finally

2006-08-04T16:16:00.000-07:00

Blakes on Telegraph street resounded with cheers of "Edgeworth trees" or "stochastic PDEs", which didnt gell very well with the rest of the crowd there. We had just finished our finals for T2.. However, all of us were glad that this term was over. With all the pressure building for the last 2 weeks, and then the finals...it was getting a bit too hectic.

Next term, surprisingly, seems even more hectic - depending on the type of courses one takes. There is only one required course - risk management, rest are all electives:

Advanced Computational finance
Credit - quantitative modeling
Success and Failure in Financial innovation
Design of securities for corporate financing
Equity and Currency markets.

All the courses sound very interesting.. I am going to see the first week of classes and then decide...

and now for that well deserved break!!

Correlation smile...

2006-07-29T23:05:00.000-07:00

Looks like the good old smile (or smirk) problem comes back in the credit derivatives market. We spent some time in the Derivatives class trying to understand why the smile exists in equity derivatives, which implies that the BS assumptions dont apply to the way the market prices these instruments.

Similarly, the one-factor Gaussian Copula model, while widely used, doesnt reflect market beliefs, thus producing an implied correaltion smile for the different tranches of say a CDX index. While an open ended question, some believe that its because the fat tails are not captured adequately by the gaussian copula model.

Week 19 - one more to go before T2 ends!!

2006-07-26T08:53:00.000-07:00

Derivatives Software

As part of the project on Derivatives: Economic Concepts course, we had to develop a working software with input/output forms to value options with extensible features, using implied binomial trees. The project was setup as a case study for advising a "client" about their various strategies to insure their fortunes. My group used MATLAB to develop this sotware..which turned out to be pretty cool at the end.

P.S.: As for the color selection of the GUI, lets just say that our "client" demanded it that way!!

week 18...the toughest one!!

2006-07-23T11:20:00.000-07:00

Week 18 was one of the toughest. We had Computational finance project report and presentation due. The project involved barrier option pricing using MC methods. The project involved developing pricing engines, which my team did by protyping in MATLAB and then developing the engine in C++. We were glad we did the prototyping - it really came through for us to understand the option by parametric studies.

As soon as we got done with this, we had to jump on for another big project due on Tuesday. Derivatives pricing using implied binomial trees....

Week 17...

2006-07-13T01:36:00.000-07:00

So there is a method to the madness. The idea of Monte Carlo simulation for pricing derivatives is well known, but even more fascinating are the mathematical constructs to speed up the process. The basic normal random number generators cluster the points in space, but quasi-random sequences (QRS) and stratification techniques help make the process more efficient. An excellent online java applet to visualize this is given here.

Week 17 - credit final .. and paper was due.

Monte Carlo using Stratification

Where Credit Is Due --

2006-07-08T21:52:00.000-07:00

Where Credit Is Due - CFO Magazine - November Issue 2003 - CFO.com

This old article caught my eye as I took a break looking over some papers for the upcoming credit risk final. Immediately, I see the practicality of the complex models we had been discussing in the class. I am also busy researching the cause of downgrade for a company as part of the paper due for this course. This course is very practical - it helps when the Prof. worked as an MD at a top credit rating agency.

This class has been extremely interesting - the first of a two-series course on credit risk. Next term, we take a more quantitative approach on building models.

Last week was busy with some heavy C++ coding (I am still learning how to code effectively) for the Quant methods course - we are discussing innovative ways to speed up Monte Carlo simulations using methods that would make a theoretical physicist blush - Brownian bridges, Stratification, Quasi-random sequences, Sobol (is that a new language???), ...

This has got to be the craziest quarter yet!!

Shoutouts...

2006-06-26T07:56:00.000-07:00

Shoutout for a relevant conference:
Mathematical Sciences Research Institute - World Congress on Computational Finance: The First Decade

The alumni event in SF was a grand success. As the treasurer of FESA, I had to cut out the largest check yet, but in all it was well worth it. Most of our class got out into the city, and enjoyed mingling with the alums, and amongst each other. Incidentally, we all realized that last week was probably the only week where we had some relief in terms of homeworks. The future weeks would be crazy...

Another interesting perspective on hedge funds being corruptors of youth in the latest issue of FENEWS: (never thought of them that way..:))
Back in the Days of Disco when I was still in graduate school, a hedge fund manager or two could be found lurking the halls of physics buildings in search of the stray Ph.D. who was having trouble getting or keeping a good post-doctoral position. Driving a taxi was considered a noble alternative to working for something as shady as a hedge fund back then.

Times have certainly changed. Now hedge funds are battling it out with the likes of Google to nab the top students from the most elite universities. If there is someone out there with the talent to break the Bank of England (or one considerably larger), the odds that he or she is working for a hedge fund have risen greatly.

Week 13-14 and end of internship search

2006-06-22T01:10:00.000-07:00

Term 2 is surely keeping everyone busy - with multiple projects that require presentations and reports, to quizzes, to lengthy homeworks, to late night classes.

However, the biggest time-drain was the entire internship process. I am lucky to report that I have finally accepted an offer for the winter internship. Dont want to name names, but suffice to say that it is a well known bank on Wall Street. I am surely relived to get this out of the way!! Thursday, we have an alumni event in San Fran in this trendy place called Thirsty Bear - a tapas bar. Looking forward to it!!

On another note - an excellent article on Wall street now targeting smaller investors in structured products. If that takes off, financial engineering will surely become mainstream - dont you think?? WSJ.com - An Arcane Investment Hits Main Street

Emanuel Derman's Blog: What's the best way to interview?

2006-06-20T16:50:00.000-07:00

Emanuel Derman's Blog: What's the best way to interview?

It's interviewing time, and I just came across this good piece of advice from Dr. Derman (the super-quant). I completely agree with him, you can buy tons of books on brain-teasers and statistics .. but if a firm is just basing its decision on these type of questions, then it may be a signal of the type of work they want you to do!! (short term work horse vs. long term strategist)

Week 12...Teaching quality spikes to new levels..

2006-06-10T12:43:00.000-07:00

Week 12 was the new semester, and the first thing I observed is the high level of teaching quality. Most of the professors bring strong industry experinence (which results in a painfully late classes..even upto 10.00P.M. :). However, it is very valuable to understand what works and what doesnt in the "real" setting. I know I am going to enjoy all these courses this semster..

The week was also busy with recruiting (Friday esp, where there were 3 companies on campus). I had a couple of interviews this week ( my performance took a normal distribution overall in these interviews). I will know in a week or two (hopefully the results are postively skewed)!!

We also had a mock interview session with alums to "prep" us for the real thing. I interviewed with an alum, and had a great time discussing my goals, classes, and other sundries...It was actually a very nice conversational interview. Post mock interviews, a bunch of us went out for drinks (and attracted a bunch of stares from people in the bars - we must have really "stood" out in our suits and ties. After all, this is Berkeley.... not Wall street!!)

Inside Wall Street's Culture Of Risk

2006-06-04T07:54:00.000-07:00

Inside Wall Street's Culture Of Risk

Nice article in Businessweek on Risk as it pertains to banking nowadays. With firms leveraging their own capital upto the hilt, risk management takes centerstage.

This trading boom, fueled by cheap money, is fundamentally different from the ones of the past. When traders last ruled Wall Street, during the mid-'90s, few banks put much of their own balance sheets at risk; most acted mainly as brokers, arranging trades between clients. Now, virtually all banks are making huge bets with their own assets on many more fronts, and using vast sums of borrowed money to jack up the risk even more. They're shouldering risks for their clients to an unprecedented degree. They're dabbling in remote markets from Brasilia to Jakarta, and in arcane products like credit-default swaps and catastrophe bonds.

1st term oVer!!! (week 11)

2006-06-01T11:41:00.000-07:00

Reduced Form Modeling of CDS This figure shows how the CDS premiums vary with maturity depending on the degree of polynomial used for the integrated hazard function. The quadratic and cubic terms model that effect, but the linear one doesnt. Note that the sawtooth profile is due to the accrual payments for defaults occuring in-between the premium payment dates.

My group finally turned in the project last night (and we were completely exhausted after 2 days of coding, data analysis and writing). In the end, it was truly worth it. The project exposed us to good concepts in credit and term structure modeling - which is just in time for the next term coursework (which begins next week), which has courses like:

Derivatives - economic concepts
Derivatives - Quantitative modeling
Credit Risk
Fixed Income
Accouting for derivatives (elective - I havent registered for this course, but may sit in some classes)

Looking forward to it!!! But I sure wish I had a longer break...

The Big Apple!!

2006-05-28T09:33:00.000-07:00

It was one busy week. Monday, took a flight with a classmate to NYC (red eye), checked into a hotel in Times Square, slept most of Tuesday morning, and then went to an information session + alumni event organized by MFE, which was well organized. (Ran into the famous "correctomundo" from the Global-derivatives forums!!) After the event, went out for drinks with some alums to the chic' meatpacking district, which was a lot of fun!!

Next morning, dragged myself to the IAFE event, and helped setup the MFE booth. The event was well attended, and I met some nice folks, both from academia and industry. I enjoyed the panels on Risk and the keynote lecture by Phelim Boyle. Incidentally, this was the first time, someone referred to me as "Quantjock".. It was none other than Aloke from NYU, who I had interacted from an earlier email exchange. We chatted at length at the differences and similarities of our respective programs.

Thursday/Friday, we moved to Jersey to stay with a friend, and kept it low key, visiting some friends on the Street, and looking over Stoch calculus in Manhattan coffeeshops for the upcoming exam. Also ate some great indo-chinese food (American chop-suey anyone?) at the Lex-33rd area of NYC.

Back in the bayarea, and getting ready for that exam!!!

Week 9...finals

2006-05-22T15:40:00.000-07:00

Finals week...and then we are done. NOT!!! :))

Turns out I am going to NYC for attending an IAFE conference and an alum event. So I had to do a last minute reshuffle of my finals (one of them scheduled for next week). I am taking off today for NYC.

Will post after my trip, hopefully with some photos and stuff...

Week 8... end of term 1

2006-05-20T17:47:00.000-07:00

Last week continued into classes and a bit of review. Thursday was the only free day, but our entire week was consumed with cover letters, interview emails, projects, and other unrelated stuff, that I just couldnt concentrate on the impending finals...

Well, this is Business school I guess, an exercise in prioritization!!

Friday was fun talking to some alums in NYC over video-conferencing. While West coast may be a disadvantage, it seems like the program does a great job "connecting" with the street..

Can't wait for the longgg (okay 1-week) break to begin!! :))

Week 7 and recruiting in full flow..

2006-05-14T03:44:00.000-07:00

Its Week 7 only, and the campus is abuzz with some news of companies coming for interviews and info sessions in a couple of weeks (Already!!!!, yes believe it). This is an incredibly hectic time for most of us - projects, finals and for some - interviews!!

In coursework, Investments talked about Mean-variance theory. Stochastics has extended the change of measure theory to higher dimensions with correlated variables, while empricial dealt with filtering issues. Thankfully, the homework pressure was a bit off thanksfully this week.... Friday was spent with my group discussing our term end project. It is an interesting project dealing with comparison of market spreads with model data using empirical methods.....

In other interesting news, I saw this first issue of CAT bonds (I dealt with some of these securities in my previous life) by a Soverign developing nation. I wonder, after seeing devastating Tsnumais and Earthquakes in India and other parts of Asia, such issues may become common there as well...

Drought derivatives and week 6...

2006-05-07T18:32:00.000-07:00

Lex: Drought derivatives: Financial News - Yahoo! Finance
Interesting article on imaginative uses of Derivatives.

This week got us into the thick of APT models in Investments (and an interesting speaker who talked about quantitative modeling for a fund that invests in ..well... movies.. very info-taining. See WSJ article on the same).

Empricial methods is exposing me to powerful concepts of Kalman filtering and GMM estimation methods. Stochastics dealt with EMM method for solving BS equation. Another great week of FPS's - one from a local (but famous.. no points for guessing) modeling firm and another the IT division of a major I-bank.

Thursday, we went for for a social with MBA finance club - it was quite useful for us to network with the other denizens of the business school - learning about the "other" side of I-banking - namely M&A, corporate finance, etc. Ended the week with another great "year end" Dean's party and a "consumption' function (more on that later...).

Week 5

2006-04-30T16:23:00.000-07:00

Week 5 wrapped up!! Unbelievable, because half the term is already over for us. This week, I definitely kicked back a little, mainly to concentrate on studying some material for the empirical methods course project (we will be working on some aspects of credit derivatives).

Meanwhile, Investments and Stoch methods have converged to the random walk theory and BS equation for options (and its myriad variations). Empirical methods is focussing on the GMM and GARCH models, some of which is quite abstract and pretty daunting at the first pass.

FPS featured one speaker from a buyside firm, and we also had another buyside firm make presentations and conduct short pre-interviews. (Self note: I am going to refrain from making comments about which firms are coming to the school and my personal opinions about the firms/type of roles on this site, just because I feel I am not qualified to make such statements).

Weekend, kicked back and went to a Dhammal party in SF with some friends. Rejuvenated, I am ready to make some progress on these hws - oh, and study for that quiz for investments!!

Week 4..

2006-04-22T12:10:00.000-07:00

This week was absolutely jampacked. A total of 4 FPS (Finance practical seminars) - ranging from speakers from Buyside, Analytic providers, Hedge funds and Sellside - the entire gamut was there!!

Stochastics has gone into the crux of things - Ito's lemma, which is the basis of the BSM equation. Empirical methods project proposals are due next week (HW has been relaxed this week)... and Investments is talking about state prices and Options.

Friday evening was good fun, hanging out at the Bear's lair, one of the campus bars - and generally enjoying the excellent California weatehr (finally!!!)

Company tidbits....

2006-04-13T16:48:00.000-07:00

Goldman "Gets It" (Goldman Sachs) SmartMoney.com

Fascinating tidbit about Goldman Sachs (and its high end business areas). Good insights provided in the article in terms fo Goldman's approach to things.

The new world of trading is not about flipping stocks for nickels and dimes ahead of client orders, or holding corporate bonds in inventory and selling them at a markup. It is about credit-default swaps and total-return swaps and volatility arbitrage, and all sorts of other investment exotica designed to give huge players even the slightest edge. Yet, only a sliver of this activity involves Goldman traders wielding the firm's capital to initiate bets across markets. Most involves client-initiated transactions that the firm facilitates and, increasingly, accomplishes by taking the other side with its own money.

Here is what Goldman is not, despite what alarmists say: It is not a huge hedge fund, or an impenetrable "black box," though the firm offers fewer details about its trading operations than some shareholders would like. Nor is it a leveraged proxy for stock prices, or a surfer of the yield curve, or a mere play on oil prices through its commodities business. Goldman is not a place where folks with MBAs and nice golf strokes simply roll the dice hoping for a seven. No gambler, it is much more like "the house."

Week 3...

2006-04-12T21:07:00.000-07:00

Week 3 has brought us all into the thick of things. Investments class is dealing with basics of Bond pricing and state prices. Stochastics class has slowly gone into a foreign language category (note GREEKs.. with emphasis on EEKS!! - martingales et al). Economterics remains enjoyable to me with OLS and a new method of quartile regression, with practical applications on real data.... Our team is also closely working on a good topic to research for the final project due as part of this course.

Seminar this week included an alum from Allianz Hedge fund partners - once again a delightful seminar, which gave me a lot of food for thought on asset mgmt industry in general, and hedge fund-of-funds industry, in particular.

Lot of buzz this week on campus as MFE team once again defeated other top schools in the Financial engineering case competition.

Watch this space closely - I will be going "live" with my identity very soon!! I have included this blog as part of my bio on the MFE page, so there is no point in my maintaining anonymity.

Week 2...

2006-04-05T23:20:00.000-07:00

School week 1 down - Stochastic HW completed..PHEW (Binomial trees, Put call parity stuff). C++, SAS and MATLAB classes to begin. Investments Quizzes on Monday mornings.. Finance Practice seminars started this week (great trading game organized by Wells Fargo folks).

Interesting article (thanks to Aloke) on Hiring the Next Generation of Quants. (Makes me feel wanted..) plus a discussion on MFE program at Haas.

Risk-neutral measure and other such bizzarities..

2006-03-29T21:55:00.000-08:00

Risk-neutral measure - Wikipedia, the free encyclopedia

Week 1 found me going through a maze of mathematics (no time for a breather). The three classes I am taking this semester relate to investments, stochastic calculus and econometrics. As ShooGu oberved, there will be a lot of work...

One term we heard a lot of this week was risk-neutral measure and martingales. It can be shown that the existence of a risk-neutral measure implies the AOA (absense of arbitrage) condition.

Orientation

2006-03-22T21:46:00.000-08:00

Orientation began in earnest this week. It has been exhausting.. meeting all my future classmates, discussing team formation, introducing ourselves and why we choose the MFE program, and getting oriented with the school, computer labs, libraries, etc.

It has been a great ride so far.. meeting some very talented classmates and even more interesting faculty and program coordinators. Too tired to write anything barely coherent, will write details later..

Nobel laureates and more...

2006-03-17T17:24:00.000-08:00

Haas NewsWire - March 6, 2006

Haas does pull in some heavyweights for the commencement ceremonies - this time it was William Sharpe of CAPM fame spoke at the ceremonies (granted he just had to hop a bridge to get to UCB)..

I wonder who will speak at my graduation eceremony one year from now???

In other news, its my last day at work today. I bid farewells, went out for drinks with the gang yesterday in Palo Alto, spoke to some of big shots, and got some packing done.

The stage is set- now for the crunch time!! Corp finance final due this weekend, C++ final project posted (due 31st), and Stats class starting this weekend as well... And First term begins March (edit) 27th.

Hmmmm.... what did I get myself into??

FEN report.. Interesting read

2006-03-08T11:07:00.000-08:00

FEN Special Report: 2006 Survey of Worldwide Graduate Education Programs in Financial Engineering, Mathematical Finance and Computational Finance

Nice article from one of the better FE online mags out there. No rankings (thank goodness), but a good overview of over 22 programs.

Moved...

2006-02-27T13:29:00.000-08:00

This weekend, we finally moved to Berkeley. I love the new place, we already made friends with the neighbors. However, even as I lay exhausted from the move, I had to sit down to finish a take home exam for Corporate finance (talk about getting into the heat of things). The exam was fine, but I ended up taking longer time because I had to figure out the financial functions in Excel.

MATLAB "why" function

2006-02-16T12:59:00.000-08:00

Type why in MATLAB to see random stuff like this come up. Okay, I am a bit light on work today!!

>> why
A young kid told me to.
>> why
Bill insisted on it.
>> why
For the love of Jack.
>> why
The computer did it.
>> why
Some not very bald very rich system manager wanted it.
>> why
You told the rich system manager.
>> why
Some not excessively rich young and smart hamster obeyed some rich and not very good and good and bald kid.

Securitization

2006-02-16T11:01:00.000-08:00

CFA-2 syallabus contains significant content on Securitization- namely securtities that derive their value from other assets that are held as collateral. There is an incredible amount of jargon depending on the type of collateral and the various risks that come with them. The main types of securities in this area are MBS, ABS, and CDOs. Some like MBS, have little credit risk (but have prepayment risk) and others like credit card receivables based ABS have significant credit risk. The modeling and valuation of these products poses significant challenges best addressed by financial engineers.

World according to Mark Rubinstein

2006-02-13T16:09:00.000-08:00

One of the fascinating aspect of MFE at UCB is the quality of faculty - each a leading expert in their fields. The foremost faculty member at Haas has got to be Prof. Rubinstein.

Derivatives Strategy - July'99: The World According to Mark Rubinstein

Interesting article based on interview with Mark Rubinstein. Prof. Rubinstein, apart from being an academic, was also the founder of LOR (alongwith Leland and O'Brien) associates. He is best known for his work on the binomial model (CRR model).

I had a chance to hear Prof. Rubinstein the other day, where he talked about great moments in financial economics - the development of some important ideas in finance. His new book based on these ideas is going to be released soon (I am sure some people will not like the book because it talks about some ideas in finance, commonly attributed to certain individuals, as being ideas that either predated the model/idea, or were independently discovered by others).

I look forward to learning Investments and Derivatives from the "Guru" himself.

John Doe, MBA, MFE, CFA, LIFA, CAIA, FRM, AIMR, BLAH, BLAH

2006-02-08T12:49:00.000-08:00

I wanted to jot down a little bit about the Cottage industry that has sprung up which offers certification credentials in the finance industry. It appears that new designations keep popping up every few years and its amusing that people are spending a lot of money trying to secure these credentials.

While the idea of self-study for writing these exams is excellent, there is no doubt that in real world, it comes down to two things when we talk about career breaks:

1. Pedigree of education (correlated with raw intelligence.. maybe debatable but probably holds with a significance level of 80%??) (HARD SKILLS) [ It is interesting that people dont like the word "pedigree", almost sounds elitist, but just see the bios of team members of top venture capital firms - you will be hard pressed to find someone other than a HBS or Stanford MBA].

2. Contacts and "being in the right place at the right time" (SOFT SKILLS AND LUCK)

These certifications try to offer alternative 3, but in my opinion, they need to be combined with 1 and 2. I see a lot of people wasting a lot of resources of obtaining these certifications just for the letters to follow their name or trying to get that one promotion in their job. It is important to analyze the industry you are into and then talk to some people who have pursued these designations (and please, this doesnt include flashy literature on the society webpages). For example, FRM might suit somebody who wishes to work in core risk management role, while CAIA will appeal to someone in the alternative investments area. I wish, there was a study that compares all these designations and really lets people uderstand the nuances in each one of them.

Googling time-pass

2006-02-01T17:48:00.000-08:00

ckruse.net
Good site by another UCB alum - links and some option calculators.

Job Fair.. and classes

2006-02-01T09:30:00.001-08:00

I had a chance to attend an MFE job fair in San Francisco. While this was held primarily for the current class, I was glad that I attended because it gave me a good chance to understand the different companies who recruit from UCB. There was a fair share of different types of companies - main groups broadly were - IBanks, Asset managers, Analytic software companies, and economic and financial consulting firms. I had a chance to interact with some recruiters and also current MFE students. The general consesus is that this was a great year to be in finance - hiring is up!! I do hope it stays that way.

Pre-term classes are going underway as well. I am really lagging behind in Corporate finance. When each lecture covers about 3-4 chapters of Brealy Myers book, it is very hard to keep up. However, I am finding that going through the lecture slides is more than sufficient to pick up on the basics and the book serves more as case study material.

2006-01-30T23:34:00.000-08:00

CFA level 2 breakdown

End of an era for hedge funds

2006-01-29T23:41:00.000-08:00

SEC to Supervise Hedge Fund Industry: Financial News - Yahoo! Finance

This had to happen I guess, given the amount of free-reign culture that had permeated the hedge fund insutry. I am sure some of the bigger funds will continue to thrive...

SAS Class Notes

2006-01-23T18:00:00.000-08:00

SAS Class Notes: Link for SAS online class at UCLA.

In other news:
- Attended a lecture by Harvey Stein, Head of Quant Research, Bloomberg
- Wrote my first C++ code for bond valuation as part of C++ class hw.
- Need to "watch" the first Corp fin class (online courses are fun!!! Can do them at my own pace).

CFA prep.. thoughts

2006-01-21T12:34:00.000-08:00

I started thinking about CFA after I got into MFE. My main concern was my lack of finance work exp, so I wanted an additional qualification on my resume that signaled my interest and aptitude for finance to future employers. But my main surprise from the CFA program was that it is also an excellent way to get started in understanding the basics of finance, accounting and economics. In a way, a crash course combining most MBA year 1 type courses.

Of course, one gripe most candidates who have to pay for it themselves have to face is: Is the cost worth it? After all, the books, exam fees, enrolment fees , prep materials, etc can run into a couple grand easily. Moreover, it is not an exam that can be passed with a month or two of studying (unless you have a very strong accounting and finance background).

I started looking seriously at the materials in August.. Some thoughts on my prep (remember that this is stuff that just worked for me..):

There is no subsitute for solid studying - I used only Schweser prep materials. For level 1, I think those are enough. Some people study from books and claim that its better. I am not sure, when you have limited time, its better to read from some notes. Also if you havent done already - sign up for the free tip of the week at schweser.com. I really liked the key SS concepts email I used to get every week.
Do all areas throughly. I left out a couple of areas - microecon, and some parts of quant (I dont like hypothesis testing too much.. its too boring).
Be on top of the game on accounting and investments (equity, debt and derivatives). These topics and ethics are the most important. My accounting was really bad - so I just did the good old technique of rote-memorizing key concepts. Believe me, it helped.
Speed is crucial. I think this is where I got some help. My engineering background has taught me to do calculations fairly quickly.
The actual test is tougher than what I found on Schweser sample exams. So it better to do a couple of exams from other sources.
Be a calculator wizard....use your calculator regularly during your studying.
I took the exam in December in SF. Be prepared for small things like parking, food, etc. Be mentally prepared for two long 3 hour sessions. It is mentally as well as physically demanding.
Ethics questions on the real test were tough.. the practice book and GIPS standards need to be studied very carefully.
The candidate readings are very important. Many questions came from the AIMR candidate readings.

I am glad I passed, mainly because when I started this journey, I didnt know too many engineers who had done this exam. In any way, I think it helped me understand some basic concepts. Now, I need to start thinking about Level 2.... The question is - Can I prepare for Level 2 while doing MFE course fulltime???

CFA level 1 ...

2006-01-18T12:47:00.000-08:00

...
PASSED!!!!

I just couldnt believe it when I saw the results. I had been keeping a bit mum about my CFA on this blog because I really didnt prepare well for it. But it all worked out great at the end.

More about this in a later post!! plus some tips on CFA prep.

Living at Cal

2006-01-11T13:55:00.000-08:00

Living at Cal - University Village, Albany (UVA)

Looks like I may decide soon on the whole living situation at Cal. While living really close to campus and doing the whole college scene sounds enticing, I also need a good apartment with some decent amenities (parking space, laundry, etc). The University Village seems like a ideal choice.. and looks like I may be able to get one of these apartments (a townhouse actually) soon enough.

Advantages:
- University housing - safe, serene and BRAND NEW!!.
- Reasonable rents (not cheap, mind you)
- Community of other graduate students from all over the world.

Disadvantages
- Bit far from campus, 15 min by Bus. Buses every 15/30 min.

Need Latex in school?

2006-01-03T22:07:00.000-08:00

I have been using MS word for the past few years at work. I like Word, but dont like its equations editor. In school, earleir, I shied away from LaTEX (which was a hit among my friends in Math, sciences, electrical engineering, and others), and stuck to another program called Framemaker (acquired by Adobe later..).

I love the LaTEX produced documents though, especially the clarity of the mathematical formulae (I know this is going to be a very geeky post, I can almost feel it).

I just starting playing with LaTEX for windows - MikTEX along with a editor Winedt (install in that order) and got started on some rudimentary LaTEX. The question is - do I need it for my MFE course? Probably not, but then it may help in those SDE homeworks.. :)-

Here are some tutorials to get started:
Basic tutorial
List of Links

Amazon: Listmania! -

2006-01-03T10:24:00.000-08:00

Amazon: Listmania! - View List "Financial Engineering"

Just started my own list on Amazon.com. I hope to add some of the textbooks as well as other FE bibles on this list as well as my book reviews in the coming months.

Happy New Year, everyone!!!

2005-12-28T17:41:00.000-08:00

Random brownian motion simulation.. Looks cool though!!

It begins...

2005-12-20T23:08:00.000-08:00

Well things are heating up on the MFE front. We have a bunch of "pre-course" courses being offered to get my consulting-jargon filled rustic brain to start firing those neurons again. MFE pre-course semester starts in Jan 2nd week and will go on till March 3rd week. This is almost like a full semester of classes, but I guess they will set the tone for the more advanced classes. The courses being offered are:

Intro to Stats
Mathematical foundations for FE
Intro to C++
Corporate Finance

I have to decide what courses I need the most. Will have to decide all that in the next week or so.

CAPITAL IDEAS- by Peter Bernstein: aka Giants of FE

2005-12-15T08:26:00.000-08:00

From Gown to Town...

I am currently reading this really nice book on the origins of modern wall street. Turns out this book is required reading for an MFE class as well. Extremely well written and chock full of accounts on the development of modern day finance.

I liked the story about the father of modern day finance - an unknown mathematician at the turn of the century - Louis Bachelier. It turns out that this guy had worked out the mathematics behind brownian motion a couple of years before Einstein did. Quite interesting...

Next giant in the history of modern finance - a 25 year old graduate student at the University of Chicago - Harry Markowitz, who literally laid the foundations for modern day portfolio management. Markowitz made a tremendous leap in the way we quantify risk and return - he formalized two age old adages - "Dont put all your eggs in one basket" (Diversification) and "Nothing ventured Nothing gained" (Risk vs. Return)., into an elegant mathematical framework.

To be contd (Black and Scholes, and OTHERS..)...

K|Quant.com

2005-11-29T16:22:00.000-08:00

Really liked the layout of this site on Quant finance. Looks like the author is a UCB alum based in London. Nice links and good recommendations on books.

K|Quant.com

Well, I should vamp up my site a bit, am getting tired of the same old. I do wish Blogger would offer more features - such as categories, etc. Companies like typepad are offering so much more...

MathFinance

2005-11-23T15:09:00.000-08:00

Well, in case we were getting worried about the dearth of fin engg and fin math websites, here is another one (based out of Germany):

MathFinance

Happy thanksgiving...

Inverted yield curve ...

2005-11-18T12:12:00.000-08:00

Well, yield curve has become a buzz word again.. thanks to a closing gap between the short-term and long-term interest rates (0.08 as opposed to an average 0.75 spread). Economists fear that if rates in the short term exceed the long term, we could have the infamous "inverted yield curve" on our hands, a sign of impending economic downturn (as thought by some people, others debate it as well). This will ofcourse have implications on the real-estate bubble, and the rest of the economy as well..

Lets hope we ride this one out!!

Breaking News...

2005-11-15T15:13:00.000-08:00

MFE internship salaries up 22%. hmm :))) Sweet!!!Haas NewsWire - November 14, 2005

Looks like almost 50% of this year's class is working in NYC this year, which alleviates my earlier concerns about Berkeley's location (dis)advantage.

"Real" Options

2005-11-11T14:43:00.000-08:00

Using Financial engineering in Business Strategy

In the corp finance class, we touched on Real options - the new and improved way to make capital budgeting decisions. I guess the central idea is that NPV type calculations assume that the decision for projects need to take place in present time and ignore the value of waiting for the "right" time of a project.
A primer on this can be found here (no math :))Using real options in strategic decision making

Looks like real-options can also be used instead of traditional DCF techniques for company valuations.

Active Portfolio Mgmt

2005-11-10T11:49:00.000-08:00

With talks of ETFs going the actively-managed way (instead of passively tracking an index), I decided to understand what exactly is active portfolio mgmt? Turns out this will be an elective in MFE, so decided to hold my horses till then.

Some search on this matter lead me to this site (authors of "The Ultimate Investor"), which contains good information regaridng active portfolio mgmt, risk mgmt, financial engineering, and quantitative investing.

Links
Active Portfolio Management
Financial Engineering

Interesting course..

2005-11-09T16:28:00.000-08:00

Link to an interesting course - from the bastion of financial engineering - HBS ((j/k of course :))
HBS MBA Program. - Half-Course: Corporate Financial Engineering

Interesting because it appears to teach FE and risk mgmt from the perspective of corporate financial managers.

breaktime: DE Shaw culture

2005-11-04T14:06:00.000-08:00

This link from excite gives a good overview of DEShaw - a prominent hedge fund.Excite-
There are links to other companies as well on the same website.

Cost of capital and CAPM

2005-11-04T13:35:00.000-08:00

It was an interesting discussion in the Corp Finance class yesterday about the Capital structure and cost of capital (WACC, MCC, MM theory, etc), and one thing that came up was how leveraged betas are used to calculate the cost of equity. The procedure to estimate a company's beta, however seemed a bit convuluted. The beta is first calculated from historic data (which is also based on a host of fators like length of data considered, market indice considered, etc); but then apparently firms like Bloomberg or Barra weight the historical betas towards one to produce an adjusted "beta". I am not sure if this even makes any sense. I found this paper which sort of puts things in perspective and suggests alternatives for beta estimation based on operating and financial leverage ratios.

www.stern.nyu.edu/~adamodar/pdfiles/papers/beta.pdf

The Wavelet Digest :: Index

2005-11-04T10:59:00.000-08:00

Wavelets digest
The Wavelet Digest :: Index

I had used wavelets briefly when they were in vogue. Need to keep in touch with the latest developments in this area..

Banking 101

2005-11-02T11:28:00.000-08:00

Banking careers 101. I need more of such articles/resources to decide on a career choice post MFE Finance jobs, banking jobs, recruitment in investment banking & in the financial markets

Buyside - Ideas For Today's Institutional Investors

2005-11-02T10:03:00.000-08:00

Link to a good magazine for Buyside. Buyside - Ideas For Today's Institutional Investors

Sorry to have been out for so long.. was travelling on business. Great to be back to sunny california!!

P-notes: a simple derivative instrument to play in Indian markets

2005-10-17T23:46:00.000-07:00

|| Businessworld - Play the game ||

Just read about these instruments which allow foreign investors to take part in the booming Indian stock market (and which allow for anonymity as well). SEBI seems to be a bit worried about these instruments, but heck, the market is booming, so who cares, right? Of course, Indian markets have always had distrust of financial engineering innovations, but this seems like a positive development.

Securities and Exchange Board of India (Sebi) has decided to allow hedge funds to operate in the Indian stock markets through the participatory notes if they conform to the guidelines being finalised by it.

Fooled by Randomness

2005-10-17T15:27:00.000-07:00

Nassim Nicholas Taleb's Home & Professional Page

Up on my list of reading. I casually glanced through the book at a local Borders the other day (my casual glance means that I must have read 5% of the book while sipping my latte). What gave me a few chuckles is that Taleb seems to make fun of the MBAs a lot (He himself holds an MBA from Wharton; however he did top it off with a PhD later). He seems to imply that MBAs just dont seem to grasp the finer details of finance - they want a cookie-cutter solution to everything.

This is interesting because another instructor of a class that I am taking (who is also an MBA) has repeatedly pointed out that major publishing houses for MBA books on finance DEMAND from the authors (sometimes at the cost of accuracy) that the books should be devoid of any mathematical proofs or in-depth formulae.

I have no idea what goes on in MBA finance classes (except a bunch of case studies), but is this really true?

Counter argument (on Amazon by a reviewer called Carouser):
Taleb lumps MBA and businessmen types into the "fool" category. This misses the point. 99% of business is not about risk-assessment, dazzling insight, or grand strategic thought, but about successful *execution* of obvious ideas, and hard work. How many eggheads have had great ideas, but never done anything to put them into action? There is no point knowing that a beach bar in the Bahamas might be destroyed every 10 years by a hurricane, if you aren't even capable of raising capital, employing people, or working 16 hour days getting it off the ground. Good MBAs and CEOs will in any case employ people like Taleb to assess risk for them.

Corporate finance midterm

2005-10-14T15:23:00.000-07:00

Well, Yesterday was the midterm for a UC extension class on "Basic Corporate Finance" that I am taking. The exam was pretty straightforward except for some True or False questions regarding transaction costs as they relate to market efficiency and CAPM assumptions.

I have been enjoying this basic class - it dwells on basic issues of investments as well as corporate finance. Looks like MFE program would also offer an introductory class on Corporate finance (in January alongwith Math and Programming class), so I will have to weigh whether I need that extra class or not!!

In other news, all this news of global inflation and rising interest rates (with a possibility of recession, coupled with real-estate bubbles crashing due to changes in tax laws) is not bringing me much joy, especially since I want the market to be upbeat when I graduate and am looking for jobs. Comments?

Pensions: The Unsolved Mysteries

2005-10-12T17:58:00.000-07:00

Pensions: The Unsolved Mysteries

Interesting article on Pension funds coming out of their traditional low-risk profiles and adopting riskier alternative investments. Will University endowments go the same route?

Home no longer on Site...

2005-10-07T10:31:00.000-07:00

This line is from a fax sent to me to describe the damage by one my collegaues in field in the hurricane affected areas. This one line brought chills down my spine. In an instant, one can lose a lifetime of memories, possessions, collections, everything which makes a house a "home".

I pray for everyone who has been through this horrible tragedy. However, one thing to learn from this is to have backup (electronic if possible) of everything that is important. I think I better invest in a scanner...

And I was freaking out when I almost lost my CD collection!!!!

More Blogs...

2005-10-06T08:45:00.000-07:00

Some more finengineer students blogs. I guess this calls for an east coast-west coast rivalry :)-

A shout out to my man Aloke
boing-wiki: MathFin

and to the rising hip-hop star
Peek into my life

Engineering + Finance = Financial Engineering

2005-09-30T10:48:00.000-07:00

The above equation is true, however, what the equation does'nt impress upon is the fact that you are combining two age old disciplines (okay, maybe modern finance is not that old) to produce innovation in a whole new field.

Someone at the panel said the other day that engineering makes a detailed analysis of a physical system and then adds on it a huge factor of safety. This is not so in finance, where values to the last digit could (and are) very significant.

In a way, this exact-ness is what appeals to me about quant finance. There is no room for hand waving - a security is priced according to a model and its underlying assumptions. Period. No BS. On the other hand, engineering seems to be moving into the hand-waving domain (with safety factors and other such CYA strategies). Finance is moving to from the other end of the spectrum (from obscure valuation models, M&A) to the "exact" side (pricing, securitization).

Ironic? Well, maybe so.. but it is refreshing.

Quest for MFE *Completed!! (03/16/2007)*

so what really happened?

so what does a strategist do??

Dinner with Jim Simons (well, along with 20 others)

and ...

Class of 2007!!

Career progression for FEs

shameless plug!!

And now...?

Week 52 - Finito!!

weeks 50/51

of bonds and raiders

weeks 48-49...

weeks 46-47!!

Tale of two cities..

troubled subprime markets..

week 45.. end of job search!

weeks 43/44..

week 42..

Perks of internship...

week 41..happy holidays and .. Mortgage backs

39-40..

weeks 35-38

MFE Career Series

WSJ mentions MFE ..

weeks 33/34...Nobel Laureates and more!!

31/32 .. I am in a New York state of Mind!!

29/30.. end of T3.. 3/4th of MFE over!!!!

Amaranth and Hedge Funds’ Hidden Risks: The Future for Investors - Yahoo! Finance

27/28...

2 big games

How I became a Quant...

week 26.. Football

week 25...

week 23/24...and football

Shoutouts!!

Week 22.. T3

How a Formula Ignited the Market ..

Week 20 - end of T2!! Finally

Correlation smile...

Week 19 - one more to go before T2 ends!!

week 18...the toughest one!!

Week 17...

Where Credit Is Due --

Shoutouts...

Week 13-14 and end of internship search

Emanuel Derman's Blog: What's the best way to interview?

Week 12...Teaching quality spikes to new levels..

Inside Wall Street's Culture Of Risk

1st term oVer!!! (week 11)

The Big Apple!!

Week 9...finals

Week 8... end of term 1

Week 7 and recruiting in full flow..

Drought derivatives and week 6...

Week 5

Week 4..

Company tidbits....

Week 3...

Week 2...

Risk-neutral measure and other such bizzarities..

Orientation

Nobel laureates and more...

FEN report.. Interesting read

Moved...

MATLAB "why" function

Securitization

World according to Mark Rubinstein

John Doe, MBA, MFE, CFA, LIFA, CAIA, FRM, AIMR, BLAH, BLAH

Googling time-pass

Job Fair.. and classes

End of an era for hedge funds

SAS Class Notes

CFA prep.. thoughts

CFA level 1 ...

Living at Cal

Need Latex in school?

Amazon: Listmania! -

It begins...

CAPITAL IDEAS- by Peter Bernstein: aka Giants of FE

Quest for MFE Completed!! (03/16/2007)