What to know about quantum finance?

Quantitative finance or quantum finance is a relatively new subject that originated in the hands of physicists and other quantitative science doctors trained in the early 70s. The models, concepts and mathematics were translated from various disciplines, the main one being physics.

In a short time, it expanded to include a multitude of disciplines each of which attached itself to quantitative finance and, therefore, pushed it in its respective directions, causing it to develop to a frantic pace.

In your quest to gain knowledge about quantitative finance, if you are wondering where to start and what is it for, then you must read this comprehensive article. But first, learn more about behavioral finance.

Let's go

🥀 What is quantum finance?

Quantum finance is the use of extremely large mathematical models and data sets to analyze financial marketss and securities. Simply put, Quantitative Finance provides the knowledge needed to analyze financial markets and securities.

This analysis is basically done using mathematical models and huge data sets. Hence, specialists in this field are called quantitative or quant analysts.

Common examples include (1) pricing of derivative securities such as options and (2) risk management, particularly as it relates to portfolio management applications. Professionals who work in this field are often called “quants”.

In addition, a Quant specializes in the design, development and implementation of the algorithm for solving complex financial problems.

🥀 History of quantum finance

It was in the 20th century that the foundations of Quantum Finance were laid from the doctoral thesis " Speculation Theory » from the French mathematician Louis of Bachelor. Bachelier first applied the concept of Brownian motion to the behavior of asset prices.

Later, the Japanese mathematician Kiyoshi Ito wrote a paper on stochastic differential equations and founded the theory of stochastic calculus which also bears his name (Îto calculus) and is widely used in option pricing.

However, the major breakthrough came in the 1970s when “On the Pricing of Corporate Debt” by Robert Merton : The Risk Structure of Interest Rates” and the research papers “The Pricing of Options and Corporate Liabilities” from Fischer Black and Myron Scholes were released that inherently featured a call and put option pricing model and after that there was no turning back.

Le Black-Sholes-Merton model known as the model “BSM” is widely used and is responsible for the rise of the options market. Today, many other stochastic models have been designed to extend the BSM model, setting the benchmarks for quantitative analysis higher and benefiting the global economy.

🥀 Quant Types

Quants create and apply financial models for derivatives pricing, market forecasting, and risk mitigation. There are, however, many variations in the roles of quants, some of which are explained below:

• Front Office Quant: Work closely with merchants and vendors on the trading floor. Implement pricing models used by traders to spot new opportunities and provide advice on risk strategies.
• Quant Researcher : Essentially the quants of the Back Office, they research and design high frequency algorithms, pricing models and strategies for traders and brokerage firms.
• Quant Developer: They are basically software developers in a financial company. They translate business requirements provided by researchers into code applications.
• Risk Management Quantity: They build models to control credit and regulatory operations and assess credit risk, market risk, ALM (Asset and Liability Management) risk, etc. They are the quants of the middle office and perform market and asset risk analysis and stress testing.

🥀 Quantum Finance vs Financial Engineering

Quantum finance focuses on mathematical models used to price securities and measure risk. Financial engineering goes even further to focus on applications and build tools that will implement the results of the models.

Financial engineering combines the mathematical theory of quantum finance with computer simulations to make price, trade, hedging, and other investment decisions.

🥀 Why is quantum finance important?

Quantum Finance is the core where you learn everything you need to know to become a quantitative or quantitative analyst. Although quantum finance is important for aspiring quants to study, it is a fact that many people who are pros in trading come from all sorts of backgrounds.

It was observed in 2017-2018, only 60% of participants who enroll in quantitative finance apprenticeship programs do not have a background in finance. So, if you have a background in finance, that's great, but if you don't, you can easily enroll in one of the diploma or certificate programs.

After becoming a quantitative analyst, an in-depth study in quantitative finance can help you in some major areas such as Portfolio Management and Currency Markets.

🥀 What qualifications do you need to become a quantum analyst?

When you aspire to become a quantitative analyst, you need to select the right qualification:

Diploma courses

There is a set of a few degree courses you can choose from to turn your aspiration of becoming a quant into a reality. You can choose a course from the list that suits you based on your interests and background. You can do a master in financial engineering.

Since the Master in Financial Engineering provides you with in-depth knowledge ranging from statistical evaluation to econometric modeling, this is an engineering course to help you in the real world.

As you gain expertise in quantitative analysis, you can work with confidence as a position in completing this task.

Vous pouvez faire un Master in Financial Mathematics. This degree gives you an in-depth insight into the methodologies of quantitative finance. Since it is oriented towards financial mathematics, you will be equipped with all the necessary knowledge to later land in the field of quantitative analysis.

This course aims to make you proficient in the practical applications of financial mathematics as a quant. Also, after completing this course, you will be able to draw logical conclusions based on quantitative analysis.

You can also do a master's in data, master's in mathematical and computational finance or a master's in applied economics.

Certification Programs

Some quantitative finance certificate programs can help you advance your profession and skills. Whether you are looking for something to help you kick-start your career or to strengthen professional skills mid-career, the certificate program serves your purpose. Here are some certification programs:

• Professional Certificate Program in Applied Financial Risk Management
• Certificate in Quantitative Studies for Finance
• Quantitative Fundamentals Certificate

🥀 The future of quant financewhich

Quants and quantum finance are here to stay! With companies getting bigger and the huge amount of data and money involved, the reach and demand for quantitative funding is growing like never before. Quantum finance is no longer just about complex mathematics and stochastic models.

As finance becomes more technical, data science, machine and deep learning, and artificial intelligence are taking over the informative decision-making strategies of the field.

Thus, quantum finance is reaching new heights through the power of high-processing computer algorithms that allow us to analyze huge data and run model simulations in nanoseconds.