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I've been considering applying for some programming jobs that require experience in Equity derivatives and whilst I know what equity derivatives are, I have no idea what sort of things a programmer working with equity derivatives would do.

So I was wondering if there were any developers on here that had experience in development roles working with equity derivatives and could shed some light on what sort of tasks an equity derivatives programmer might be expected to do.

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+1 for an interesting question. –  Gary Rowe Jan 19 '11 at 13:28
Obligatory warning to ye: youtube.com/watch?v=DLFkQdiXPbo –  Job Jan 20 '11 at 16:08
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2 Answers

I addressed some of these issues in an earlier question:

How do you get a high paying job programming in finance?

Generally speaking, the more exotic the financial instrument, the more separation there is between the analysts and the developer. In cash equities, the developer and the "quant" analyst are often the same person, at least on the front desk; and being a quant is the first step towards being a trader.

In very esoteric derivatives (like Bermuda swaptions, etc), the analyst, developer, and trader and all three completely different career paths. That's because the analysts must have a strong math background, particularly in stochastic differential equations.

You didn't say exactly what derivatives the employer wants to trade. If they are doing level 2 vanilla options, you'll need to handle a massive data set, like 1 TB a day. This has to be done for historical and realtime data.

While the required math background for a developer isn't as high as for an analyst, you should at least be familiar with the Black-Scholes model specifically, and time-series analysis in general.

I'll reiterate a previous warning I gave in the answer I linked above: you must get as "close to the money" as you can, meaning work with the traders or portfolio manager in the front office. There is a real risk of getting pigeon-holed in the back office if you aren't careful, especially at the beginning of your career.

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So for those who don't know, equity derivatives are a specific banking / trading product, see here. Very basically they're ways of selling stocks and shares such as options (to buy in the future at a set price) and futures (which are commitments to buy / sell a stock or share at a given price at a given point in the future).

In terms of the tasks, they're the same sort of development, support and analysis tasks you'd likely carry out anywhere - bug fixing, build, unit test. Banks are almost always well resourced enough that the round the edges type tasks (DBA, packaging for release and so on) won't be covered by the development teams as they'll have specialists. The work can often be interesting and challenging and you'll almost always have great kit and training (because they've got the cash).

Probably Java, Linux/Unix, Oracle but could be an MS stack (.NET / SQL). The systems will usually be large scale, may be real time and are likely to be, if not mission critical, then at least responsible for very large amounts of money (with the sort of pressure that goes with that).

And that's the downside - merchant banks are often all about pressure and politics - they pay very very well and they make significant demands in return - there can be lots of arse covering (never delete an e-mail, never put anything in writing if you can avoid it) and long long hours. They're paying you well above market rate and in exchange they reserve the right not to care about your views on the productivity of the 40 hour week or how you had plans tonight when something comes up at 6pm.

But the reason they ask for this sort of knowledge is that this sort of role isn't just about the technical tasks you'd be carrying out, it's about the business knowledge that underpin the requirements and systems you're working on, and your ability to communicate well with the business.

Basically they're saying "we don't want to have to explain all this complex stuff from first principals so you need to know it up front." And it is pretty complex, it's the sort of thing that caused the banking crisis - what you can learn from Google isn't likely to be enough.

That said in some cases they are willing to take on those with good technical skills who are keen to learn. In these situations then be honest and don't try and blag it - you will get found out. Learn enough to show you're keen, focus on your technical strengths and, if it's what you want from you career, be happy you've found a route onto the gravy train.

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This is a good answer. Options market data is quite massive, so any dev needs to be able to handle large data sets (up to 1 TB a day if doing "level 2" quotes), both historical and realtime. The OP didn't mention the specifics of the job ad, so I'll just mention that the quants who design pricing algos usually hold a PhD in a mathematical discipline. Many banks separate quant analysts from quant developers because of the divergent tasks for derivatives. (Contrast that to cash markets, where the analyst and dev are often the same person.) –  chrisaycock Jan 19 '11 at 14:42
Thanks for the great answer. So would developers working with equity derivatives be required to be strong with the underlying analytics / algorithms that are used to drive the software and that it wouldn't just be enough to be technically strong? –  lomaxx Jan 19 '11 at 20:56
@lomaxx All devs should at least be familiar with the Black-Scholes model. Knowledge of time-series analysis in general is a requirement, though a bank might have a separate role for developers independent of the quant analysts. Note that you run the risk of being pigeon-holed to the back-office (a career dead end) if you can't get "close to the money", ie work with the traders or portfolio managers directly in some capacity. –  chrisaycock Jan 19 '11 at 21:26
@chrisaycock you should put your comments in an answer so I can vote them up! –  lomaxx Jan 20 '11 at 6:48
@lomaxx Ok, it's done. –  chrisaycock Jan 20 '11 at 15:08
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