MSc in Financial Mathematics | metrics table at end of article
The law of the instrument describes a well-known cognitive bias that quants were accused of in the aftermath of the financial crisis: if you only have a hammer, then every problem looks like a nail.
It’s a bias King’s College is trying to drum out of the next generation of quants.
“Much of mathematical finance was criticised after the crisis for causing some of the problems. They were using risk-neutral valuation in places where it should never have been used,” says Teemu Pennanen, leader of the school’s MSc in financial mathematics.
King’s has responded by giving students the chance to learn about incomplete markets – a branch of finance theory that Pennanen says has been neglected by many programmes.
“The right way would have been to use the incomplete markets theory – that’s what we’ve introduced into our programme recently. Incomplete markets is a mix of economics and optimisation theory; optimisation theory is something that’s been missing from most mathematical finance teaching. You see more and more of it in the literature, but I guess it hasn’t filtered down into MSc programmes,” says Pennanen.
It also hasn’t completely taken root in the industry, he adds: “After the crisis, they hired a lot in risk management, model validation, but they still use risk-neutral valuation in some of the trading desks, and you hear from many practitioners that this is not enough for modern banks and the trades you have to deal with.”
The programme accepts around 30 students per year. Over the course of the programme, students get the opportunity to master C++ and MatLab, while R is taught as part of the econometrics course. Up to four electives can be chosen, which range from recent topics in financial mathematics to more traditional specialisms in exotic derivatives.
The introduction of Python is also on the agenda.
Students have access to 13 Bloomberg terminals during their studies, which are used in various ways – for example, to gain practical insight into how financial markets operate, develop investment strategies and source research data.
King’s College is a constituent of the University of London, so optional modules at other member universities (including the London School of Economics and University College London) are available to its students.