aN) AATAWALNI €Of INVA Bre CiUn wp. Ei 1H) UANT INTERVIEW OTT E COIR a Answersbesa Ree aa TOES MEU CU La Let shia Premed ere econ kent wees riiccagconms Monel on iL Caa te} interviews in the City and Wall Street. Hero meaaromeon oma ewan ecco Coed Fre) Tts OMe Cero AU TS ICEL ag CONa Pears etter CeO res oc Co) Cosette asa (on Topics covered include option pricing, Peco amen nie onrteremerE Nasty PY Oe TIE A One ee NYS UE Oe Kea USSCo) of the interview process and the non-technical interview. DE tra Neca ie oun chetitecere tac ag textbooks “the Concepts and Practice of Mathematical Finance” and “C++ Design Patterns and Derivatives Pricing,” He also worked as a senior quant in industry POSUE NBT E UGC Cy name ices tau ocrce tates icon M ted tse e meses aa S NavB-ex8277095 | Hl 7031 llQuant Job Interview Questions and Answers Mark Joshi Nick Denson Andrew Downes©Mark Joshi, Nick Denson, Andrew Downes 2008 Version 1.01Contents Preface ‘What this book is and is not How to use this book Website ‘Structure ‘The publication of this book Chapter 1. The interview process 1.1, Introduction 1.2. Getting an interview 1.3. The standard interview 1.4. The phone interview 1.5. The take-home exam 1.6. The exam 1.7. Follow-up 1.8. Dos and don'ts 1.9. When to apply? 1.10. The different roles 1.11. Sorts of employers 1.12. Where people go wrong Chapter 2. Option pricing 2.1, Introduction 2.2. Questions 2.2.1. Black-Scholes 2.2.2. Option price properties 2.2.3, Hedging and replication 2.2.4. The Greeks vii 1 1 1 3 5 6 6 7 8 9 10 12 15 15 16 16 7 19wv ‘CONTENTS: 2.2.5. General 2.2.6. Trees and Monte Carlo 2.2.7. Incomplete markets 2.3. Solutions 2.3.1. Black-Scholes 2.3.2. Option price properties 2.3.3. Hedging and replication 2.3.4. The Greeks 2.3.5. General 2.3.6. Trees and Monte Carlo 2.3.7. Incomplete markets Chapter 3. Probability 3.1. Introdu 3.2. Questions 3.2.1. General 3.2.2. Stochastic processes 3.3. Solutions 3.3.1. General 3.3.2. Stochastic processes Chapter 4. Interest rates 4.1. Introduction 4.2. Questions 43. Solutions Chapter 5. Numerical techniques and algorithms, 5.1. Introduction 5.2. Questions 53. Solutions Chapter 6. Mathematics 6.1. Introduction 6.2. Questions 6.2.1. General 6.2.2. Integration and differentiati 63. Solutions 2 147 147 148, 148, 157 157 157 159 189 189 189 189 191 192CONTENTS 6.3.1. General 6.3.2. Integration and differentiation Chapter 7. Coding in C++ 7.1. Introduction 7.2, Questions 7.3. Solutions Chapter 8. Logic/Brainteasers 8.1. Introduction 8.2. Questions 8.3. Solutions Chapter 9. The soft interview 9.1. Introduction 9.2. Soft questions and answers 9.3. Finance data questions Chapter 10. Top ten questions 10.1. Introduction 10.2. Questions Bibliography Index 192 210 223 223 226 233 275 275 276 279 297 297 297 303 305 305 305 307 309Preface What this bool and is not The purpose of this book is to get you through your first interviews for quant jobs. We have gathered a large number of questions that have actually been asked and provided solutions for them all. Our target reader will have already studied and learnt a book on introductory financial mathematics such as “The Concepts and Practice of Mathematical Finance.” He will also have learnt how to code in C++ and coded up a few derivatives pricing models, and read a book such as “C++ Design Patterns and Derivatives Pricing.” ‘This book is not intended to teach the basic concepts from scratch, instead it shows how these are tested in an interview situation. However, actually tackling and knowing the answers to all the problems will undoubtedly teach the reader a great deal and improve their performance at interviews, Many readers may find many of the questions silly and/or annoying, so did the authors! Unfortunately, you have to answer what you are asked and thinking the question is silly does not help. Arguing with the interviewer about why they asked you it will only make things worse. For that reason, we have included many questions which we would never ask and think that no one should ask. That said, if the questions are too silly then you may want to consider whether you want to work for the interviewer. How to use this book We strongly advise you to attempt the questions seriously before looking at the answers. You will learn a lot more that way. You may also come up with different solutions. We have included a number of follow-up questionsvit PREFACE without solutions in the answers, which may or may not have been asked in a live interview. Tackling these will help you refine your skills. Some questions ‘come up time and time again, so if you have actually learnt all the answers then there is no doubt you will eventually get some duplicates, but that is not really the it is more important to be able to tackle all the types of questions that arise and to identify your weaknesses so you can address them. Eventually, of course, the interviewers will buy copies of this book to make sure that the questions they use are not in it. However, in the meantime, you can make the most of your comparative advantage... Many candidates at their initial interviews seem to have a poor idea of what is required. If you find the questions in this book unreasonably hard, you are not yet ready. If you think that you will never be able to do them, then now is a good time to think of an alternative career. If you are on top of these sorts of, questions, you should have no problem getting an entry level job. So use this book to judge when you are ready. If possible, get a friend, who is experienced, to give you a practice interview when you think you have reached that point. Website Inevitably, readers will have plenty of questions regarding this book’s contents. For that reason, there is a forum on www.markjoshi .com to discuss its content. In particular, if you think a solution is wrong, or want a solution to a follow-up question, then this is the place to ask. There are also a lot of additional resources such as recommended book lists, discussion of problems, job adverts and career advice on that site. Structure ‘This book is structured as follows: we start with a discussion of the interview process in Chapter I including how to get one as well as how to conduct yourself during one. We then move on to actual interview questions; each chapter contains some general discussion, a set of questions from real-life interviews, and then solutions with follow-up questions. We divide these into topics by chapter: option pricing, probability, interest rates, numerical techniques, mathematics, coding in‘THE PUBLICATION OF THIS BOOK x C++, and brainteasers. We then discuss how to handle a “soft interview”, that is a non-technical interview, and list possible questions. We finish with a list of ten of the most popular questions from quant interviews. The publication of this book The reader may be curious to know how this book has been published. We decided not to go with conventional publishers for a number of reasons. The first is simply that the authors lose all control; once you have signed on the dotted line all the understanding and reassurances from your editor become worthless, A second is timing, a conventional publisher can easily take two years to get a book from draft to release. We have therefore gone with print-on-demand direct sales. this approach to publishing, the book is printed and bound after the order is made. There is therefore no overhead but the final product is of equally high quality. We hope that you will support this publishing revolution with your purchases and the books you write.CHAPTER 1 The interview process 1.1, Introduction In this chapter, we look at how to get a job interview and then what happens ‘once you have one. We also discuss the types of interview, the general process and what happens afterward. It is important to realise that how you behave in and approach the interview can have a marked effect on your chances. We round off with a discussion of the different roles, areas and types of employers. There are, of course, many sorts of interviews and many ways for the interviewer to conduct it, but ultimately the interviewer wants to find out two things: ‘* Do you have the technical ability to do the job? ‘* Will you behave reasonably? That is, will you do what you are asked and get on with others. ‘The first will be assessed via a barrage of technical questions, and the second by observing your behaviour and on how you respond to general questions. Most interviews focus largely on technical ability, since most candidates fail at this point. However, on the rare occasion there are multiple candidates who are good enough technically, other factors do become important. 1.2. Getting an interview For many candidates, the biggest problem is getting the interview in the first place, There are many ways to get that far. The first thing to remember is that in hiring “like attracts like.”