In the mid ‘90s, stock trading moved from open outcry in the pits of the Chicago Stock Exchange to electronic trading from desktops in offices all over the city. With that revolution came a need for new and different skills, according to Carl Luft, an associate professor in the Driehaus College of Business (center).
“We wanted to prepare our students to succeed in an industry that was changing dramatically,” he says, explaining the genesis of the MS in Computational Finance.
“When designing the program ten years ago, we asked a panel of industry experts what they wanted from new graduates,” recalls Massimo DiPierro (right), an associate professor in the College of Computing and Digital Media (CDM).
“They said they could find good MBAs who couldn’t write computer programs. And they could find good programmers who didn’t know about business. We decided to bridge that gap by putting our two schools together and leveraging the strengths of each. At the time, our program was unique, and it’s still very different from others because our students can actually put a theoretical model into practice—that’s a huge, important distinction.”
Luft describes the challenge. “Sophisticated traders have a strategy, but since their speed of execution can't compete with a computer's, they need someone to convert their ideas into algorithms, which are coded rules for automated calculations and decision making. It’s a great advantage if the person who’s coding understands bid prices, asking prices, volumes and the trader’s overall business objectives.”
“When technology came between the trader and the transaction, the risk was suddenly much greater. With the speed of electronic trading, a mistake could quickly get away from a trader; in a blink, firms could go bankrupt,” adds Mark Goetsch (left), an adjunct professor in CDM who helped develop the program as a graduate student. “But our graduates could make complex trading strategies work. That was our edge. From the beginning, they were in great demand, and today this MS is more relevant than ever.”
In 2004, the program expected 10 students and got 20. Last year, 80 students enrolled.
The idea for the MS started in DiPierro’s class, Monte Carlo Algorithms, which covers mathematical techniques for quantifying risk. “I was illustrating concepts with examples from physics, and my students asked for more—for finance examples—because they had come to the course with the hope of finding a very particular answer: 'How do you determine the risk of an investment?' " he recalls. "Their jobs were changing, and they wanted to stay on top of the technology.”
While graduates have three natural employment venues—large banks looking for people with specialized skills; hedge funds looking for people who can run simulations using statistical tools; and trading companies looking for very good programmers who understand finance and can fill multiple roles—what’s taught in the program has far-ranging applications, says DiPierro: “Every business has to calculate the risk in decisions.”
Given the interest in the MS in Computational Finance, the two colleges are working on another collaboration, this time an MS in Enterprise Risk Management, which will be offered through the Driehaus College of Business but include a concentration in cyber risk. “I think this will be another first in the country,” Luft says. “Everything is becoming more dependent on technology now. If businesses don’t embrace technology, they’ll be left behind, no matter what.”