Quant job interview preparation for physicists

Shouvik Datta

We pretend stocks behave like smoke diffusing, or that short term rates satisfy geometric
Brownian motion. None of this is true in the same sense that it’s true that planets satisfy
Newton’s laws. Financial models attempt to describe the ripples on a vast and ill-understood
sea of ephemeral human passions, using variables such as volatility and liquidity that are clever
quantitative proxies for complex human behaviors. Financial engineering is really a multi-
disciplinary field that involves not only science but art too. It involves financial knowledge,
business knowledge, mathematics, statistics. It also involves psychology and introspection.
Also, very very importantly, computation, because there’s little you can achieve without com-
putation. So think of yourself as working in an interdisciplinary field in which you have to
bring to bear many skills to solve practical and theoretical problems.
Emanuel Derman — Commencement Speech at UC Berkeley, 2014

1 How to apply?

The best place to search for jobs today is LinkedIn. Open an account and update it with the place(s)
where you have done your education, PhD and postdoc(s) – for each position you have held write 2-3
sentences describing the research you did in layman language. Add a profile photo without wearing
sunglasses or caps. In LinkedIn, you can set up alerts when new job openings are advertised. Some
search keywords are ‘quantitative finance’, ‘risk’ and ‘data’. If you have one, add ‘PhD’ as a keyword too
since some firms explicitly write that they are interested in hiring candidates with doctoral degrees.
Make an industry ready CV or resume which does not extend more then 1.5 pages (a single page is ideal).
Do not list your publications, but just put a link to your author page on Google Scholar, NASA-ADS or
INSPIRE-HEP. Mention that you are interested in quantitative roles and you have quantitative research
experience, good presentation skills, technical documentation skills and know programming. Keep things
less technical, short and precise and, if needed, tailor it to specific job advert you are applying to. You
can find further advice on building the CV from the first 18 minutes of this video from CERN.

2 What to prepare?

2.1 Probability, statistics & brain teasers

A good starting point is "An interview primer for quantitative finance" by Bester. It covers questions
on probability, statistics and programming. In the first few sections it also offers general advice on job
interviews and other references.
The main books which cover Q&A for the quant interviews are (in my order of preference):

• Zhou, "A practical guide to quantitative finance interviews"

• Joshi, Denson & Downes, "Quant job interview: Questions and answers"

• Crack, "Heard on the street"

Some of the questions in these books may look quite difficult but it is good to go through the solutions
if you can. It is, however, unlikely that extremely difficult questions will be asked during the interview.
You do not need to go through every single question, but going through most of Zhou will put you in a

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very good position. In case you find the questions too difficult, consider starting with "Schaum’s outline
on Probability and Statistics" by Spiegel, Schiller & Srinivasan, and then move on to Zhou.
Get adequate practice on problems on coin tosses, dice rolls, choosing from a deck of cards, random walks
(see e.g. Chandrashekar’s review) and Bayes’ theorem. Some popular questions include the Monty Hall
problem and the gambler’s ruin.
A relevant YouTube channel is atypicalquant. Some of the questions are pretty challenging, but you’ll
get some flavour of the kind of questions asked in top notch firms at Wall’s Street.
For statistics, the MIT course 18.05 is to the point. I would suggest going through all of it. You need
know about hypothesis testing, z, t, χ2 tests, confidence intervals and the like. Also good to learn some
time series analysis techniques.
For logistic and linear regression, this review is good: arXiv:1803.08823. Please go over the assumptions
and errors of regression methods. It is also helpful to know some (but not much) basics of machine
learning which is covered there – you should at least know how regularization is done and what the
bias-variance tradeoff is.

2.2 Programming

For programming it is good to know basic algorithms such as recursion, searching an array, sorting,
unique elements etc. Most firms will give you an option to answer questions in Python, R or C++; I was
once asked in a hedge fund interview to code in real time on a pair programming platform. Personally, I
prefer Python since it’s popular and widespread these days.
You can get some practice on coding on websites such as HackerRank, LeetCode or CodeWars. The list
of Grind 75 questions might also be useful. Some helpful YouTube channels in this regard are Keith Galli
and Neet code. If you want to learn or brush up on the basic algorithms (e.g. sorting, searching, etc.)
take a look at Bhargava’s "Grokking Algorithms" book.
It is also useful to know about the basics of Monte Carlo simulations – it is used intensely in teams
specializing in option pricing and credit risk so can expect some basic questions. In case you haven’t
used this in your research, you can read the first chapter of "Statistical Mechanics: Algorithms and
Computations" by Krauth.

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2.3 Finance

Finally, here are the references on stochastic calculus and finance:

• Higham, "An Introduction to Financial Option Valuation"

• Baxter & Rennie, "Financial Calculus"

• Kakushadze, "Phynance" (lecture notes based on Baxter & Rennie)

• Bouchaud & Potters, "Theory of Financial Risk and Derivative Pricing: From Statistical Physics
to Risk Management" (written by physicists, has in-depth explanations)

You should be able to answer what a call/put option is, what’s Value-at-Risk, have a good understanding
of geometric Brownian motion and know how to solve simple stochastic differential equations. The most
important aspect of this section is to derive the Black-Scholes equation and you might be questioned on
the assumptions, boundary conditions and the form of the solution. Once you understand these concepts
go through the Q&A of the finance and stochastic calculus sections of Zhou’s book. Read about portfolio
optimization from Chapter 12 of Bouchaud & Potters.1
There are some lecture videos on mathematical finance from Caltech, MIT and IIT Kanpur. The last
one is mathematically rigorous and very detailed. In any case, watching these lectures is an overkill for
interview preparation. But if you are planning much ahead in time and want to know more about the
subject, it is worthwhile to go through them.

3 Get some feel of it

3.1 Keeping up with the Quants

Often there are non-quantitative questions asked during the interview. This is done to test your interest
and general understanding of the field. It is a good idea to be aware of what’s happening in the financial
sector and skim through the following news websites

• The Economist: finance and economics

• Wall Street Journal: Markets

As a fan of podcasts, I find Money Talks by The Economist, Behind the Money and Unhedged by
Financial Times and Thoughts on the Market by Morgan Stanley to be quite informative about the
general trends in the financial world. You can also checkout some episodes of the podcasts Masters in
Business by Bloomberg and NPR’s Planet Money. These YouTube videos on option pricing and the
general machinery of economy are very educational and well-crafted.

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A popular book is Hull’s "Options, Futures & Derivatives" for an introduction to finance. However, this book did not
appeal to me. Although it’s a good book for business school, I feel it’s not directed to physicists looking for a transition to
finance – the style is verbose, factual and slow in getting to the mathematical aspects. The other extreme is the two-volume
"Stochastic Calculus for Finance" by Shreve which is intensely mathematical to the point of having theorems, lemmas
and proofs with  and δ’s. This reference is valuable you want to dig deep and be rigorous (and it’s certainly not for
interview prep). However, most physicists prefer a practical approach to arrive at concrete results. To quote Derman again:
“Finance has gotten very mathematical in the last 15 or 20 years, and I kind of disapprove it. People teach it as a branch of
mathematics but really it’s a real world field and it shouldn’t have theorems or axioms, it about the way the world behaves.”

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3.2 Bedtime reading

I highly recommend Derman’s "My life as a Quant: Reflections on Physics and Finance" for an enter-
taining autobiographical account of a particle physicist transitioning into the financial sector. For an
entertaining collection of math puzzles and brain teasers see "The Colossal Book of Short Puzzles and
Problems" by Gardner. The books by Nahin have a great collection of probability questions.

4 Making up your mind

Transitioning out of Physics is a difficult decision. If you have been passionate about the subject for long,
it’s natural to feel somewhat lost and regret that your efforts have not led to something more permanent.
There are obvious pressures to remain as a ‘fighter’ and not walk away as a ‘quitter’. However, (depending
on your situation) do realize the threshold to justify and sustain the troubles you were/are going through
as an academic. I suggest reading this nice FT article which portrays our cognitive biases against quitting
and starting something different. Often accepting the fact that our original dream is not what you want
to make as your lifelong mission provides you with some level of peace, and perhaps even a shot at
something better than you imagined.
Quantitative finance comes with its own share of sophistications and challenges, and is an exciting field in
it’s own right. It has to do with developing practical methods of understanding complex systems and it’s
not simply about ‘making money’ all the time. You will keep using your quantitative skills and intuition
on a daily basis to work on real world problems. The vibe in quant teams is also collaborative, where
you work with smart people who come from a variety of academic disciplines and, thereby, bring a mix
of approaches to the table.

Acknowledgements

It’s a pleasure to thank Kevin Ferreira, Aleksander Garus, Dennis Hansen, Reimar Hecht, Sabiha Ma-
jumdar, Arunabha Saha, Nilanjan Sircar, Matteo Vicino, Achim Wingerter and, especially, Baban Wagh.
These are the physicist-turned-quants who gave me valuable advice to prepare for my own interviews in
the spring/summer of 2022. Much of the compilation above is a selection of resources I came to know
from them.

Disclaimers

Any opinions expressed here are personal. I do not hold copyrights of the images used in this document.