Racing to Keep Up: Saturday, June 12, 2004

The field of Financial Engineering is growing at a lethal pace. It has become impossible to keep up with every new idea that is being created by researchers, let alone practitioners, and there are many others adding to the pot of intellectualism.

I asked colleagues whether they thought this was broadly true of the field of Finance, that is, pervasive in all its subfields, or not. Most felt that the amount of high quality output is rising, but not at a breakneck pace. Likewise, this may be true of all fields in the business school.

Financial Engineering appears to be different - its growth is certainly exponential. I serve as an editor to the journals that specialize in the field, and even I find it hard to keep up with the stream of work. Quality is rising, and the quantity of top research emerges as a blast from a fire hose.

First, one distinct difference is that the field is fair game to people with diverse backgrounds. Many top hard scientists have left their primary fields for good, and now work solely in financial engineering. Physicists, mathematicians, computer scientists, engineers, astronomers, operations researchers, siesmologists, weather forecasters, actuarial scientists, etc, have all been drawn to the fascinating mathematical problems that permeate this area.

A second driver for this phenomenon is that a move into the area is a step up in terms of career payoff. It is also intellectual arbitrage. Physicists and others experience three satisfying aspects of this career change: (a) There is the excitement of a new, living, thriving field, with immense practical application. (b) It is easier to technically outperform most financial economists working in the field, and (c) the visceral thrill of money; it is about money and there is more money in it personally too.

Thus, if there is an explosion of work in the area, how does one keep up? After thinking much, there seems to be no new way to do this. I guess one just has to stick with the old ways, which are:

1. Keep doing research vigorously. It forces you to read the literature critically.

2. Do referee and editorial work - again it pays off in keeping current, as you see all the new work.

3. Go to seminars, even though many of them are terrible. If nothing else, you see new ways of thinking about problems, and get a sense of where one should focus one's reading.

4. Go to seminars outside your area. Or more simply, get a breath of fresh air.

5. Think - it focuses your reading.

6. Read - it focuses your thinking.

7. Read widely - it broadens your thinking and leads to creativity.

8. Write - it forces you to read and think.

I short, even if the river flows faster, stay in it and go with the flow.