A Momentous Win for Tandon’s Quantitative Finance Competition Team
Each year, the International Association for Quantitative Finances (IAQF) issues a challenge, and this year, graduate students in NYU Tandon’s Department of Finance and Risk Engineering (FRE) answered, with authority. The Tandon team, led by captain Beixi Chen, included master’s students Yizhou Chen, Xutao Chen, Tiancheng Hou, Yusi Yang, and Mengrul Zhang. They won the competition by solving an intricate portfolio analysis and investment strategy problem, tying for first place with teams from UC Berkeley and the University of Washington.
All teams were tasked with constructing four portfolios, each based on specific criteria and investment strategies set forth by the IAQF. The teams then analyzed the four portfolios to see if they exhibited the traits of popular investment approaches, like momentum strategy. The teams were also asked to compare the portfolios: did they have essentially the same returns? How could the future risk be calculated for each?
Beixi Chen said that his team spent several days digesting the IAQF’s challenge, deciding how to interpret its criteria. “We found that the most challenging part was how to differentiate the four strategies because they’re so similar, but they differ by when and how to execute,” he explained. They ultimately chose to pursue a strategy that would attempt to rein in the portfolios’ volatility, while capitalizing on the capacity for enormous growth. “Since the plain momentum strategy generally performs not so well in a volatile market situation, which is also a natural disadvantage of momentum strategy, we tried to optimize it, not only to yield a better performance but also to keep the volatility of performance within a reasonable range.”
Chen said that much of the team’s inspiration for their solution came from Tandon FRE courses, including using the lambda value for determining how much an option’s price will change in volatility and mean variance optimization, tools that came in handy in this competition. “I think this is the most exciting part,” Chen asserted. “We learned how to use knowledge gained in class, transformed it, and built up a model with real value.” The team also credited their teachers and mentors with their success, including Professors Gordon Ritter and Jerzy Pawlowski, who helped them better understand and predict future risk.
One team member, Yixhou Chen, says that he studied physics as an undergrad, which contributed to his unique understanding of finance. “During my first year studying financial engineering, I found that financial models also often use matrices or calculus, just like physics models.” He plans to bring this understanding to a future career tackling problems like market timing or industry rotation analysis.
Because all the team members graduate next year, they may not be eligible to compete in the 2019 IAQF challenge, but they each expressed a desire to use the knowledge that took them to victory out in the real world of finance and portfolio management.
Annie Brinich
NYU Tandon School of Engineering
Master of Science in Integrated Digital Media, Class of 2019