Stock Market: Foot in Both Academic and Industry Camps








It's January 1997, I'm being wooed by an American bank, one of the most technically sophisticated on Wall Street and with a working environment not unlike academia. I've been headhunted many times before, but for the first time, I'm tempted. I go to three or four interviews. We discuss the position, it's called something impressive like "Head of Global Research;" the salary is going to be so enormous that I'll be able to retire in a small number of years. Then we get down to lifestyle issues. How flexible are the working hours? How much control do I have over vacation time/business travel? As a divorced father of two, I already don't get to see my children as much as I'd like. Any constraint on my time is going to translate into less time with my children. In the end I decline the job offer.

Now it's March 1999, I'm still a Royal Society University Research Fellow in the mathematics departments of Oxford University and Imperial College London. I tell people that this is the second best academic job in the U.K., the first being a Royal Society Professorship, which is the same job but twice the salary! My job is to undertake research. For the last 8 years I've been working mostly in the area of mathematical finance.

When I started working in math finance there were very few applied mathematicians in the field. It was dominated by finance professors and pure mathematicians, probabilists. And I was the most applied of applied mathematicians. I'd previously worked on industrial mathematical modeling, such as the design of aircraft wings, the prediction of the effects of explosives planted in quarries, and the optimal design of razors (the two-blade variety) to name but a few. My talents lay in quantifying real-world problems, hearing about a problem and turning it into mathematics. This is the role of the applied mathematician, to be at the cutting-edge of modeling. Once the equation has been derived, it can be analyzed by other kinds of mathematicians. I was lucky to be in the right place at the right time, there was little competition from other applied mathematicians.

By being at the start of the influx of applied mathematicians into finance, I was able to make a name for myself quite easily. Writing a book on a subject is a sure-fire way to fame, if not immediately fortune, and I've just had my third book published. But the lure of the big salary and the bigger bonus is tempting. Most Ph.D.s and postdocs do succumb to this temptation. Why haven't I? As I said at the start, it's mostly a matter of lifestyle. As an academic I get an unbelievable amount of freedom, which cannot be compared with other jobs. That sounds like I don't do any work! This is far from the case, math finance is probably the fastest moving quantitative subject and if you don't work damn hard you quickly fall by the wayside. I value this flexibility greatly. But if I didn't get a decent income I'd be pretty green with envy when I saw my ex-colleagues and students.

I manage to get an income in the same ball park as finance practitioners by keeping a foot in each camp; some of the time I wear my academic's hat and some of the time I'm working for banks. There's only a limited amount that I'm officially allowed to do, but well-known academics can command outrageous consultancy fees. As well as consultancy, I now do a lot of in-house training for banks. This is very lucrative, and also great fun. Any contact that I have with practitioners increases my awareness of the realities of math finance, feeds back into my research, and means that I can charge even more for my services!

In order to popularize the applied side of mathematical finance, I've been involved in a couple of projects recently. The first was the foundation of a new academic journal Applied Mathematical Finance. This is now in its sixth volume, is selling very well, and attracting excellent submissions. We've published some of the most exciting new research of recent years. The other project has been starting a new degree course at Oxford University. January this year saw the first intake of students on our modular postgraduate diploma in mathematical finance. This course is aimed primarily at finance practitioners who want to return to study the subject and latest developments but on a part-time basis. Being part-time and aimed at practitioners means that it is almost unique in the U.K. and for that reason, as well as because of the reputation of the university, has seen incredible demand.

For more information about any of the above, see either my business Web site or the site of the Mathematical Finance Group at Oxford.

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