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QuantNet released its biennial review of North America’s top 25 graduate-level financial engineering programs and once again the Tepper School of Business at Carnegie-Mellon University takes valedictory honors. If you’re beyond brilliant, have masochistic tendencies, are willing to pay $77,100 in tuition and can spend two years in Pittsburgh, you too can earn CMU’s coveted Master of Science in Computational Finance degree. (There is a Wall Street satellite campus, consisting of two classrooms and a lounge.)

Number two on the list is shared by the Ivy League tag team of Princeton University and Columbia University; Columbia wins the intramural battle of New York-based programs. Of course, you could go to the tied for third place Baruch College of the City of New York University for less than half the price of the number two programs — and if you’re planning on marketing yourself as an empirical guru, you have to at least consider that. Baruch ties with University of California at Berkeley’s Haas School of Business, the best of the West.

Next on the list is Columbia again — its separate Mathematics of Finance program playing second fiddle to its traditional MFE course. No list in this field would be complete without the Massachusetts Institute of Technology’s Sloan School of Management representing New England (Harvard and Yale didn’t even rank.)  The Top 10 are rounded out by a tie between Cornell University and Atlanta’s Georgia Institute of Technology, the first among financial engineering programs in the South.

Other notables lower on QuantNet’s list include two Rutgers University programs, another Baruch program (in contrast to Columbia, CUNY’s Mathematics of Finance outranks its MFE), and the sole Canadian entry, the University of Toronto.

The biggest surprise in this latest list, as compared to that of two years ago, is that tech-savvy Stanford University sank since the last ranking — from a sixth-place tie with rival Berkeley to falling off the list altogether. North Carolina State University and Ohio’s Kent State University also missed the cut, but they were on the bubble to start. This cleared the way for newcomers: The University of Washington, The University of Minnesota and Baltimore’s Johns Hopkins University.

Still, there can only be one first-place winner, and CMU’s MSCF distinction is it. According to recent alumni, it’s unparalleled not just in its reputation, but in its ability to deliver the skills that buttress that reputation.  “The time I spent at CMU in Pittsburgh was definitely the most satisfying in my academic life,” says Sudhanshu Ladha, ’11. “The MSCF program is rigorous, practical and provides you with an extremely solid foundation for any job related to financial engineering, trading or quantitative analysis. … [It] also helped me get exactly the job that I was aiming for and I don’t think I could have been better prepared by any other course.”

As with anything, you’re not likely to get any more out of it than you put into it but, if you’re a quantitatively-inclined person looking to maximize your value while applying for investment banking jobs, it behooves you to check out the relative merits of MFE programs.

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Every year, somewhere between $35 billion and $50 billion in capital is raised via initial public offering of company stock in the United States. According to Renaissance Capital, that accounts for around one hundred and two hundred new ticker symbols a year — not exactly standing still, but not exactly a torrid pace. It is, however, a steady pace. With the exception of the go-go days of the tech bubble in the late 1990s, trading in equities has been considered the sleepy, unimaginative end of the financial services sector. Certainly, it wouldn’t appear there’s a lot of room for investment banking job growth there, whether it’s in IPO advisory services, securities trading or company research.

So why is it that equity options is so hot right now? Then again, who cares why? It’s growing prodigiously, so maybe that suggests a more target-rich environment for finding Wall Street jobs.

According to an industry group called the Options Industry Council, almost 361 million contracts on equities or exchange-traded funds changed hands in October 2013, almost a 24 percent increase over same period the previous year. Even so, the year-to-date growth doesn’t quite break 2 percent.

Therefore does it make sense that, as the Aite Group reports, there were only seven U.S.-based equity option exchanges in 2010 but there are now at least 12? Consider also that volumes dropped — as you’d expect — during the early days of the Great Recession, and then dropped again — this time taking open interest with it — over the course of 2012. Further consider the technical glitches that have always been part and parcel of derivatives trading. Finally, consider the regulatory scrutiny that is currently being directed at Wall Street.  According to Aite senior analyst Howard Tai, the real question is whether or not 12 is enough.

While we puzzle that one out, let’s just roll with one takeaway: they are hiring.

You might want to make an inquiry at any of these young bourses:

As you might suspect, working at these exchanges involves a certain information technology savvy that goes beyond the typical analyst’s SAS and Microsoft Excel capabilities. Still, if you’re looking for an financial services career, maybe it’s time to embrace that the future is now and come to grips with the fact that programming skill is quickly becoming an integral part of the investment banker’s toolkit. That holds true even if you’re applying for positions at such venerable options exchanges as NYSE Euronext, Nasdaq OMX or the Chicago Board Options Exchange.

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Ever since the financial crisis in 2008, analysts have pondered whether investment banks would return to their days of glory or languish in decline for the foreseeable future. In a recent Economist piece on the issue, the author suggests that the worst is yet to come for the big institutions, as global economic trends and regulation continue to work against the industry.

Primarily, it comes down to return versus risk. While investment banks regularly posted returns on equity in the low to mid-twenties up until the crisis, these returns are now half of their peak levels. Worst of all, this decline in return comes at a time when risk within the financial industry has grown substantially. For diversified banks, it’s becoming harder and harder to justify setting aside funds for investment banking activities when their other division can post equal returns, though at substantially less risk. Accordingly, the industry has seen a number of institutions dramatically shrink their investment banking operations since 2008, with some banks exiting the business altogether.

This comes as financial regulators weigh more heavily on the industry. Higher capital standards will force banks to further reconsider investments in riskier business lines, as these activities quickly eat up available capital under new guidelines. Risk taking as a result will be substantially scaled back, with real consequences for some firms. In some countries, regulators are considering a full scale split of investment banking divisions from traditional commercial and retail activities, further endangering some of the industry’s biggest players. These regulatory changes are being driven by politicians that are simply unwilling to accept the public backlash that would come along if another round of taxpayer funded bank bailouts was needed.

In the midst of all this doom and gloom, it is important to note that the Economist admits that it has made negative claims regarding the industry before, and ended up being dead wrong. Fifty years ago, it described British banks as the “world’s most respectable declining industry.” However, these same institutions rallied with decades of consecutive growth, at least up until the financial crisis. While the outlook today may be fairly bleak, the industry has proven itself resilient and innovative in overcoming hurdles in the past. It is always difficult to permanently count out teams of the best and the brightest, even when they’ve been beaten down.

Jamie Dimon, Chariman of JPMorgan Chase, is one of the industry insiders that remains bullish on the future of investment banking. With staggering growth seen in emerging economies and the increases in international trade to go along with it, Dimon believes the “underlying trend [for investment banking] is up… Over time it will grow.” And there may be some history worth paying attention to when it comes to Dimon’s statement. In the past, financial-services revenue has increased with high correlation to global GDP. If this correlation was to return to past form, investment banking would certainly have a very optimistic future.

With strongly contrasting views from those on both sides of the argument, it remains unclear just what the future has in store. However, one thing can be certain. The landscape will radically change for investment banking over the months and years to come. What the industry looks like coming out the other side of this evolution remains anyone’s guess.

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Investment Banking Outlook Mixed according to Standard and Poors

December 31, 2012

Standard and Poor’s, one of the leading global credit rating agencies, released some comments about the investment banking industry in general this month. Overall, the agency sees a mixed outlook for the industry, with some opportunity for growth, albeit with a great deal of uncertainty and risk. Cost cutting is expecting to continue for several […]

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