In this edition of Calculated Conversations, I had the privilege of speaking to Dr. Alexis Levendis, who recently obtained his PhD in Actuarial Science on the topic: “Applying stochastic volatility models in the risk-neutral and real-world probability measures”. We conversed about his experience as Quantitative Analyst and course creator for his Quant training academy: “The Real-World Quant”, which is “dedicated to upskilling students and industry professionals in the field of Quantitative Finance”, where he provides industry relevant courses for Quants.
In this conversation we delved into a variety of themes, including what drew him to quantitative finance, what inspired his impressive platform, what valuable skills Quants should develop, and more!
Here is what he had to say:
1. You’ve worked across banking, consulting, and insurance. What drew you to quantitative finance in the first place?
In my third year of University, I had a subject called Financial Engineering. The course covered basic topics such as call/put options and the binomial option pricing model. Excited by the content, I then went on to read Mark Joshi’s paper, “On becoming a quant”, and this drew me to the field. Quantitative Finance is a field where you can really apply your mathematical skills.
2. You’re actively sharing industry knowledge through your platform. What inspired you to start The Real-World Quant?
I have the privilege to work in industry and still be involved in academia. I believe that this gives me a unique perspective on topics that are a “must know” for any quant that plans on entering the field. I also enjoy teaching and believe that I can make a positive impact in financial markets education.
3. You’ve worked on everything from credit modeling to derivatives pricing. What is one area of risk that you think deserves more attention?
Counterparty credit risk is a hot topic in financial markets and can become very complex. For example, there is a metric called Potential Future Exposure (PFE) that measures the maximum exposure that an institution has to a counterparty at some confidence level. There are so many factors that need to be taken into account depending on the trade economics: interest rates, foreign exchange, credit spreads, correlations etc. I believe this is one area where quants will continue to place their focus on.
4. For someone looking to enter quantitative finance today, what is the most valuable skill they should develop?
Intuition. It is extremely important to understand what the quantities produced by mathematical models mean. As a simple example, the first derivative of a function with respect to a variable plays an extremely important role in risk management. It is not just the “rate of change” or “gradient”; it actually tells a story. For example, the first derivative of a call option with respect to the stock price is called delta and tells the trader how much stock he/she should hold to hedge against market fluctuations in the stock price. Having a deep understanding of what these quantities mean makes a quant stand out.
5. What’s a challenge in financial modeling that still doesn’t have a perfect solution?
No model is perfect. Each model has its limitations and it is more important to understand what the model cannot do. The Black-Scholes model is a good example. The model assumes constant volatility of the underlying stock, but we know this assumption is flawed. The market now uses the Black-Scholes model but inputs a different volatility for each strike and maturity.
6. What is, according to you, a finance concept every Quant should be comfortable with?
My answer here is going to be slightly different than the usual “Black-Scholes model”. I believe every quant should be very comfortable with interest rates. Spot rates, forward rates, discount factors, compounding conventions, yield curves, etc. The yield curve plays a crucial role in financial markets and is typically the starting point for financial instrument valuation.
7. Finally, where can people follow your work and learn from you?
You can follow my page and website, The Real-World Quant, on LinkedIn and read my academic work on my Google Scholar profile (Alexis Levendis). All my research papers are open access. My online courses can also be accessed through my website.
Throughout this conversation, Dr. Levendis shared valuable insight that every aspiring quant can benefit from, such as every Quant has to be comfortable with interest rates, accepting that no model is perfect, and developing intuition is crucial. Dr. Levendis’ expertise is a testament to hard work, perseverance, as well as natural talent and passion for the industry. His talent for breaking down challenging topics into bite-sized and easy to digest answers is truly something to admire and I can definitely see why his courses are held in such high regard
A huge thank you to Dr. Levendis for sharing his knowledge and experience!
His courses can be found here: https://the-real-world-quant.my.canva.site/#home
What do you think are the most crucial concepts every finance professional should know?
If you enjoyed this, feel free to check out my other Calculated Conversations: https://youngandcalculated.blog/calculated-conversations-10-mr-amogelang-kgaladi-on-leadership-strategy-from-chief-risk-officer-at-26-to-group-chief-actuary
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