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Women in Quantitative Finance #1 - Interview with Professor Carol Alexander

Fri, 18 Jan 2013 08:39:00 GMT

Carol AlexanderIn this first of a series of interviews of Women in Quantitative Finance, I've been speaking to Professor Carol Alexander who leads the Finance and Accounting Group at the University of Sussex and is co-editor-in-Chief of the Journal of Banking and Finance. She is also the former Chair of Risk Management of the ICMA Centre at the Henley Business School in Reading and between 2010 – 2012 she was Chair of the Board of PRMIA (Professional Risk Manager's International Association). She holds degrees from the University of Sussex, a PhD in Algebraic Number Theory and an MSc in Econometrics and Mathematical Economics from the London School of Economics.

Carol has held a number of interesting positions in financial institutions: She was a Fixed Income Trader at UBS/Phillips and Drew; was Academic Director of Algorithmics, a Director at Nikko Global Holdings where she was Head of Market Risk Modelling. She has been a Risk Research Advisor at SAS and also acts as an expert witness and consultant in financial modelling.

She publishes widely on a broad range of topics, including: volatility theory; option pricing and hedging; trading volatility; hedging with futures; alternative investments; random orthogonal matrix simulation; game theory and real options. She has written and edited numerous books in mathematics and finance and published extensively in top-ranked international journals. Her definitive four-volume textbook on Market Risk Analysis was published by Wiley in 2008. It's also worth mentioning that Carol is a member of the MoneyScience Advisory Panel and has been a friend of the site almost since the beginning in 2004.

Jacob Bettany: It's great to have you with us today Carol. Thank you very much for joining me to talk about your experience as a women in finance.

Carol Alexander: Thank you Jacob, for the opportunity.

JB: I thought I would start by asking about your experience as an Educator and the proportions of men and women you've seen studying in the Quant Field, say at the MSc Level.

CA: Certainly. At MSc level the proportion of men to women is about 50-50, in line with undergraduate level. It's later that it changes, at higher levels of employment status and especially at senior management and board-level.

JB: Does that proportion persist at PhD level? The reason I ask is that as I've been preparing for these interviews, it's become clear that there are fewer women to find to talk to - or perhaps there are lots out there, I just don't know them.

CA: No, only 5 out of 17 PhD students I’ve supervised are women. But, they tend to be particularly successful, once they get to that level. Certainly among Quants in the industry, there are many more men. I am a firm believer that there is a mathematical type of brain that is more common in men than in women. I actually think there is a biological difference there, so in the Quant MScs and further up, you do begin to see more men. Then of course going into jobs, the main thing is the biological clock for women. It works against them all, unless of course they don't want to have children. Assuming they do, there is this conflict at a crucial time in a woman's career: when a man is devoting himself 100% to his career a woman is devoting herself to her family, to support her husband and children. Her career tends to come a poor third.

JB: Was that the case for you?

CA: Yes - in fact especially so, because I was a single parent for 10 years. I managed to get by during that time working 20 hours a week, even though I had a full-time academic job (that’s possible in junior roles, if you only focus on teaching and a minimal amount of research). So I didn’t make a name for myself, or make network connections that are so important for career advancement, like my ex-husband did. And I still have less time to devote to my career than most men. I still cook dinner every night, run the household (shopping, washing, cleaning …) and my youngest child is still at home. In two years, when she goes to University, I’ll have more time to travel, as most academic males do.

JB: Perhaps we can talk a little bit about your own background in the industry, and your academic background. How did you get from Algebraic Number Theory to Finance? I'm sure that's an interesting story.

CA: Well you have to remember that when I got my PhD it was 1980, and there were virtually no academic jobs in algebra. Luckily, I got a 2 year Leverhulme postdoctoral fellowship to do research anywhere, so I went to Amsterdam University with my (Dutch) ex-husband. First I delayed it 6 months so we could travel together, then after another 6 months in Amsterdam he wanted to return to the UK, so I gave up the Post-Doc and I had to find something else. I could have become a sort of 'Cambridge wife' doing some college tutoring, but that's not a real job - so I decided - why not? - I'll try the City.

I wrote letters to 80 different firms - consultants, banks - and was taken on by Phillips and Drew which later became UBS, in the International department. I rather liked doing something practical and I wrote a paper while I was there on the valuation of index-linked gilts using inflation forecasts. But it was clear to me that I really wanted to be an academic so I went to the LSE to do a Masters degree in Financial Econometrics and Mathematical Economics, with the aim doing adding a skill that was more saleable than Algebra to my CV. During that time I got interested in Game Theory and Econometrics and after the MSc I got my first job at Sussex University. It was then I was approached by Hill Samuel Bank to take some leave of absence from the university and advise them on econometric models. I built the first GARCH models and cointegration-based models for use by investment banks -- this would have been around 1989 or 1990.

Around this time I started writing papers for Risk Magazine, I was invited to give talks at conferences and one thing led to another until I found I was getting more and more involved in finance, through consultancy. Then I took a part-time job at Algorithmics, keeping on a half-time appointment lecturing in maths at Sussex, and then I decided to go into the City full as a Director and head of Market Risk Modelling for Nikko Global Holdings. Unfortunately it was acquired by Travellers soon after I started, so I stopped work (my daughter was only 2 then) and I stayed at home and wrote my first book, Market Models. Then in 1999 I became a Professor at the ICMA Centre.

JB: So when you first went into the industry proper, in that full-time role, what was it like as a woman going in? Were there many other women around?

CA: No there weren't. At Phillips and Drew there was one other woman on the same level as me. There were plenty of women PAs though. In an office of 35 to 40 people there perhaps two other women at a senior-ish level. I was in a Quant group and I was the only woman. This was pre-1987 remember, pre-Big Bang, so the business was done over Boozy lunches with the old school tie. A lot of the men had public school education and Oxbridge degrees in Classics. That was the standard profile of a British banker at that time, before the Americans came.

JB: And did you struggle to integrate? Did you find the culture challenging?

CA: Yes, I did. I found the attitude of most people was not at all like my own. They thought that money was the most important thing and I didn't, so in fact I was quite unhappy personally in that environment, which is why I decided to retreat back into academia.

JB: We hear talk about 'the Glass Ceiling', did you experience that?

CA: Well, at that point I was too far below the glass ceiling to feel it. It was only later that (more than a few people have remarked) I shot right through it, and I guess in a way I may have. I didn’t really feel it at the time.

JB: You talked a little bit about the biological differences - as you see them - between men and women. There's been some research about the different approaches men and women have to risk. Did you experience that first-hand?

CA: Yes, definitely, I have experienced that. I have experienced men with a lot of responsibility being fairly reckless, exhibiting the sort of behaviour I have never seen in a woman. I'm not saying it doesn’t happen, but in my experience, I've never known any women be devil-may-care, so disregarding protocols or procedures, as some men that I know.

JB: We've talked about the cultural issues you faced. Did being a woman give you any advantages in those situations?

CA: Well there has been some positive discrimination, I think. More than anything, once you operate at a senior level in your career, you tend to get noticed, simply because you are female and therefore unusual. In general, though, people get appointed not only on their own merit but also depending on who they know. And most women don’t get the chance to build a network anything like as good a as typical man’s – for family reasons, as I said earlier.

JB: Was there a sense in which you had to prove yourself, by solving problems for instance?

CA: I've always held that I should let my work should speak for itself. By making it public, by writing books especially, it should speak for itself - and it's worked. In that sense, over the years, I proved myself because I made my work public. I’ve published a lot of academic papers and I give a fair number of conference talks. But I only do one long-haul trip per year, for a limited time – for family reasons.

JB: In a sense your work with PRMIA gave you a foot in both camps, but since you left the industry as a practitioner, have you noticed a change in attitude towards women in finance?

CA: No. Not really. I think it will happen, though. I've noticed a change in attitude among younger people - under 40 – to be less chauvinistic, to be blunt. But of course it's that older generation who are still in charge. In 10 - 20 years I think things will have changed a lot, because we'll have 'the new man' in charge. At the moment power still lies with men who are not so politically and socially aware.

JB: I understand. One final question on this issue. What advice would you give to young women who are entering the capital markets and finance generally.

CA: I would say work hard, and let your work speak for itself. Adhere to the highest standards at all times, never drop them - and make sure that you are heard without be seen as pushy!

Market Risk AnalysisJB: Thank you Carol. To finish up generally I thought you might like the opportunity to talk to us a little bit about your book - your 4-volume set indeed! - so perhaps you could talk a little bit about what prompted you to write the books?

CA: I felt I had a duty, believe it or not, to pass on the knowledge that I had gained. You have to understand that my husband has been my teacher, and he is brilliant, but he doesn't publish very much. And not just him, there are many other people who have been my teachers, all men - but none with voices as good as mine. I am quite quick to pick things up, and don't forget things once I've had one conversation about it - it's all in my head – and I have a way of explaining complex things in a relatively simple way. Anyway, I felt I had a duty to pass on all the knowledge I’ve gained from talking with brilliant people over the years. Of course it's not a perfect product. Writing 4 huge books from scratch and publishing them all at once was a quite a feat of endurance. And somehow, I have to get a to stage in my life when I am ready to back to them, to revise and update everything and try to make it more perfect. But that will take another 5 years out of my life, so I’m not sure when that time will come.

JB: Obviously as you were writing it the financial crisis was happening around you. Did you find you were having to modify what you were doing as you were doing it?

CA: Oh yes. But I didn’t have much time for that – the first three volumes were published in the spring of 2008. I did change the 4th volume, on Value-at-Risk models, which was published at the end of 2008. But since the crisis the whole landscape of risk management has changed, so I have quite a lot to update in the 4th Volume.

JB: As a textbook, it's obviously used in Business Schools and on Courses. Have you had much feedback about that.

CA: Well, I haven’t made any lecture notes myself yet but some of my close colleagues (like Sjur Westgaard, an Energy Finance Professor at Trondheim) have based quite a lot of modules or even whole degrees on the books, and sometimes they send me the lecture notes they have made from the materials I give on the CD Rom. I also have discussion forums for each volume, so I get a lot of feedback there. The forums have more than 500 members who – if they find a bit in the book they don't understand – or an error in one of the Excel Spreadsheets (after all there are more than 5000 of them!) – have a place to comment and ask questions. And almost all of the posts start off by saying thank you very much for writing this!

People like the pedagogical approach, you see. I don't include anything in the book unless I can also illustrate it in an example with an interactive Excel spreadsheet attached. For example, I have spreadsheets which price European exotic options like double barriers and Asians and ladders, and all those formulae are available in the spreadsheet and derived in the text. Examples like this makes the books very practical and very easy to understand. That’s really what makes my book stand out from the other text books in the field (although I understand that John Hull, who obviously wrote a classic book in the same area as volume 3, now provides practical, numerical examples made by PhD students – that’s a great idea). I know quite a few financial software companies that use my excel spreadsheets as a template or check for their own software.

JB: Well thank you very much Carol. I’ve really appreciated the chance to talk to you.

The website for the book, Market Risk Analysis – the 4 volume set – is marketriskanalysis.com Carol’s personal pages are at carolalexander.org.

 

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