Doing the maths

Mathematicians are on the warpath, apparently, and it is all Lord Turner’s fault.

At least, that is according to an article in the FT, which says that mathematicians have been seething since Lord Turner blamed "misplaced reliance on sophisticated maths" for lulling banks' top managers into a false sense of security about the risks they were taking. The view of the mathematicians is that, in fact, the maths were not sophisticated enough. Financial institutions paid the piper and called the tune – an oversimplified tune giving the illusion of control.

As someone dedicated to addressing skills gaps, I had been pondering what quantitative skills the industry might really need when I happened to meet Timothy Johnson of Heriot-Watt University, a research fellow whose role it is to champion financial mathematics. Did you even know there was a discipline called financial mathematics? He made an eloquent case for a reassessment in the light of the credit crunch.

Mr Johnson’s point – and if I oversimplify the fault is mine, not his - was that a lot of the graduates with quantitative skills who are snapped up by our industry have the wrong kind of maths. For example, engineers are comfortable with a deterministic universe. As Scotty the Star Trek engineer says, “Ye canna change the laws of physics”. Well, an engineer would say that: a physics professor probably would not - which may be why the City is hoovering up every physicist and mathematician they can get hold of. Apparently, asking most engineers to go and work in a random world – that is a technical term by the way, not a criticism - like financial services is asking for trouble. You need people who are trained in probability and randomness. That is one reason why French and German mathematicians are popular in the City. According to our academic, their training in probability is much more rigorous than the British system, and only a minority of British mathematicians are taught with the same statistical basis.

Whether or not you agree with this view, there are some good examples of firms that do, and have prospered - at least by the standards of the current crunch.

At the time of writing, BNP Paribas seems in good health and is planning to bring new jobs to Scotland. Man Group plc supports the Oxford-Man Institute of Quantitative Finance, which conducts research in quantitative finance, with a particular emphasis on alternative investments, and has attracted world-leading mathematicians.

And even those who might not agree about the need for more sophisticated maths are still worried about the shortfall in quantitative skills. Two years ago, when we surveyed the skills needs of the City, employers were stressing the increasing importance of high-level quantitative skills, as well as their acute shortage. In developing and transferring cutting-edge quantitative and computational finance skills, employers in our sector were often in the vanguard, but were eager to develop partnerships with academia. This was in part because the pool of skilled people was not growing fast enough to keep up with the demand. The supply of home-grown talent in the UK, in particular, was seen as being directly affected by the educational system’s ability to produce highly numerate people.