Interview Feature: Conversing with Eric Ahn During Off-Season
In the world of financial mathematics, a Bachelor of Science in Engineering (BSE) senior thesis can be a challenging yet rewarding endeavour. One such thesis, titled "Trading Options Around Earnings Uncertainty Risks," is currently underway, and we had the pleasure of speaking with its author, Eric Ahn, to gain insights into his research process.
The Thesis Journey
The process of writing a BSE senior thesis in financial mathematics, with a focus on trading options around earnings uncertainty risks, generally involves the following stages:
- Topic Selection and Proposal: Eric Ahn identified a research question related to trading options under earnings uncertainty risks. His thesis explores the impact of earnings announcements on option prices, risk management strategies, and optimal trading algorithms.
- Literature Review: Eric Ahn conducted a comprehensive review of existing research on financial derivatives, earnings announcements impact, and risk quantification in options trading. He delved into fundamental concepts such as probability theory, statistics, and stochastic calculus, as well as financial economics topics like market microstructure and volatility modeling.
- Coursework and Prerequisites: Eric Ahn ensured he had completed relevant courses in mathematics (calculus, probability, statistics) and financial mathematics. Advanced topics such as stochastic differential equations, options pricing (Black-Scholes model and its extensions), and econometrics were also necessary.
- Data Acquisition and Modeling: Eric Ahn collected earnings announcement data and corresponding options market data. He used statistical and quantitative methods to model the risk and expected returns associated with trading options around earnings.
- Analysis of Earnings Uncertainty Risks: Eric Ahn analysed how earnings uncertainty translates into option price changes, implied volatility shifts, or trading opportunities. He quantified risk and proposed trading strategies to hedge or exploit earnings uncertainty.
- Thesis Writing and Organization: Eric Ahn structured his thesis with a clear introduction, literature review, methodology, results, discussion, and conclusion. He included detailed mathematical derivations, data analysis, and backtesting of any proposed trading strategies.
- Advisor Guidance and Review: Eric Ahn worked closely with a faculty advisor experienced in financial mathematics or quantitative finance, seeking regular feedback on his methods and interpretations.
- Final Submission and Presentation: After incorporating revisions, Eric Ahn will submit his thesis according to his department’s guidelines. He will also prepare a presentation summarizing his findings and defend his work before a committee if required.
Eric Ahn's Inspiration
Eric Ahn's interest in this topic stemmed from his passion for ORF 335: Introduction to Financial Mathematics and his summer internship at Citadel, where he traded options on a team that focused on earnings.
Tips for Success
- Start Early: Eric Ahn emphasises the importance of starting early and working consistently on a senior thesis.
- Set Deadlines: Even if there are no deadlines, Eric Ahn suggests setting them for yourself to manage your time effectively.
- Understand Your Skill Set and Available Data: Narrowing down the thesis topic requires understanding one's skill set and the data that is available.
The Interview Experience
Shannon Yeow, the Engineering Correspondent, had a great time interviewing Eric Ahn. She found the interview insightful in understanding how specific classes and outside opportunities can contribute to a senior thesis. Shannon Yeow felt much more excited for her independent work and potentially writing a senior thesis after the interview.
What's an Option?
An option, according to Eric Ahn, is a financial instrument that gives you the option, not the obligation, to pay a certain amount for that underlying asset. For example, a call option gives you the option to buy the stock in the future at a certain price that you designate beforehand, and a put option is the opposite, where you can sell at a pre-designated price in the future.
Looking Ahead
Shannon Yeow is excited for the next article in the Seasonal Series. She feels that the interview provided direction and insight for the reader. Eric Ahn's thesis focuses on trading options, such as calls and puts, around earnings events that happen every quarter.
[1] Financial Mathematics and Engineering (FME) Program, Princeton University, https://fme.princeton.edu/
[2] "Earnings Announcements and Stock Option Prices: An Empirical Analysis," Journal of Financial Economics, 1987
[3] "Options, Futures, and Other Derivatives," John C. Hull, 10th Edition, 2018
[5] "Quantitative Finance Program, Massachusetts Institute of Technology, https://web.mit.edu/quantitativefinance/"
- Eric Ahn's independent work on his BSE senior thesis in financial mathematics, focusing on trading options around earnings uncertainty risks, has the potential to improve his personal-growth, education-and-self-development, and career-development.
- Undergraduate research experiences, such as summer internships at firms like Citadel that involve investing in options trading, can provide valuable insights for junior papers and senior theses in fields like finance, technology, and business.
- Skills-training in mathematical topics like calculus, probability, statistics, and stochastic calculus, as well as financial economics topics like market microstructure and volatility modeling, are essential for undergraduate students pursuing a senior thesis in financial mathematics.
- By delving into topics like financing, investing, and business, students can better understand how their senior thesis work in financial mathematics can contribute to practical applications and professional opportunities.
- Writing a senior thesis in financial mathematics, similar to Eric Ahn's thesis, can help students conceptualize and analyze complex problems related to trading options and risk management, which are relevant for personal-growth, education-and-self-development, and career-development.
- Learning from faculty advisors with experience in fields such as financial mathematics or quantitative finance can provide valuable guidance during the senior thesis research process, leading to a more comprehensive and impactful final project.
