Wednesday, May 25, 2022

CFA vs. M.S. Math Finance (or Financial Engineering)

Well hello YouTube I was actually searching youtube this morning and I saw that there are a lot of videos talking about the difference between the CFA program and an MBA program and I did not see a video talking about CFA versus a Master of Science in mathematical finance or financial engineering or financial mathematics and right now I .

Can tell you that I'm in both of these programs so I thought I'd take the time and share my opinion on when to do CFA when to do a masters and what the differences are between them and one you should do one over the other before I get started let me talk about my background so you know where I'm coming from when I form my opinions here I am .

Actually a high school teacher and I was very interested in finance and I wanted to change careers so I ended up pursuing a master's in the mathematical finance and the CFA at the same time I really didn't know what I wanted to do and I wanted to just cover as much area as I could so I ended up signing it for the first exam of the CFA program as I .

Started my first semester of the mathematical finance program at this point I'm about two weeks away from taking the CFA exam and about 80% complete with the master's in mathematical finance so I have a pretty good idea at this point of what the curriculums are and how the curriculums differ between the two and really what .

The goals are of the two programs so now let's talk pros and cons and we'll start out here with a CFA now the biggest advantage the CFA has is that it is cheap compared to a master's program or an MBA the CFA is going to be much cheaper now if you register early like I did the exam fees 650 and then the enrollment fee is 450 now if you don't .

Register early the cost goes up quite a bit now the good thing about these costs is that some of them may be covered now like I'm a veteran and the GI Bill covers some mine I know that a lot of the students in my master's program are applying through scholarships just through our University and they cover usually the exam fee at least and then .

Wound up paying the our own enrollment fee but no doubt about it the CFA will end up being cheaper than a masters or an MBA next advantage it has is that it has a very broad curriculum one of the reasons I signed up for CFA is because I didn't know what I wanted to do in the finance industry I knew I wanted to do something in finance I just .

Wasn't sure what it was so I signed up for CFA because I knew it covered a lot of topics and it covers a lot of topics I can tell you that it covers anything from ethical responsibilities the whole way to quantitative analysis that like you would actually find in a master's program and it also covers accounting I mean it covers almost anything you could .

Think of next is globally recognized and I can tell you when I go to take this exam in the next two weeks our admission ticket to get into the exam is our international passport okay on the cons I think the biggest con for me about pursuing the CFA exam is that it is three very large exams that cover an extreme amount of material and all have .

Very low pass rates if you go on the CFA's website right now you can look at the pass rates for passed exams and it they're all right around 50 percent now think about that if you do really well on the first round of the CFA exam and you study really hard and you're in you're in the top 50 percent and make it to round 2 now you're competing against .

All the people who just did the same thing as you and made it to round 2 but still only 50% of those people are now going to pass round 2 and it just keeps getting more and more difficult so I can tell you from my perspective I think it was easier for me to study for my master's program because it's focused on a smaller set of material maybe in my .

Financial econometrics class he said the exam will be on these first four lectures which was a manageable amount of material compared to the CFA which says you're going to take the level 1 exam it's here's your 5,000 pages good luck and I just think that the master's program is much more manageable in that .

Respect next con is that the CFA just has a lack of practical programming assignments and lack of practical assignments for me in general if you take a masters degree they're going to give you a programming language and they're going to say perform this analysis or run this regression in this specific language so that you can also .

Learn the programming language while you're learning finance now as an example as what the CFA does the CFA we'll talk about maybe as an example is reading a section today that was talking about computing back beta and one of the ways you can compute beta is by running a regression the CFA simply says you can compute beta by running a regression and .

Then that is the end it doesn't talk about what software to use to run the regression or specifically how to run the regression it's very short in its description of how to actually compute beta running a regression so I'd say the biggest another big downfall of the CFA is that it talks about how to do some of these things but doesn't actually give .

Us practical exercises on how to do them using real software then the third big con for me is that when you sign up for the CFA you're on your own now certainly you can study and do all the practice questions and if you don't understand something you can turn to the Internet and most of the time that will work but if there's something that you truly .

Don't understand you're probably going to have to dish out some more money I can tell you probably almost weekly I get something in the mail asking me to send them more money to sign up for a mock exam or to sign up for a 90 minute review session to help me pass but if you want real instructor assistance I'm just biased toward the master's .

Program okay now let's talk about pros and cons of mathematical finance master's program or financial mathematics or financial engineering the biggest Pro for me was that the curriculum can be tailored to meet your needs if you look at the mathematical finance programs that a lot of the top universities in the United States maybe .

The top 25 rankings you can pick concentrations now you can do a computational finance or maybe a risk concentration and within those concentrations the courses vary and you might even be able to select the courses within those concentrations so for me that's one of the biggest advantages to doing the master's program because you .

Can say well I'm most interested in analyzing risk so I'm going to take this risk concentration then I'll get some quantitative risk management exposure and some portfolio management exposure and things like that whereas the CFA says this is our curriculum you're going to learn the curriculum and that's that next the .

Master's program will force you to do practical programming exercises and I have an example of this in our financial econometrics class I'm at the University of North Carolina we have to write a paper where we actually model data and then try to find the best forecasting model for the data and you just aren't going to get anything like this in the .

CFA program so we build our model and then we use MATLAB code to run to actually perform the regression and then we analyze which the best model is and at the end of all this then we display all of our charts which are output by MATLAB and finally we append ilan our MATLAB code and this is just something that you're simply not going to get with .

A CFA program so while the master's program is going to cost much more I think that what you're getting is just much more worthwhile next obviously through a master's program you're going to get instructor assistance I can tell you that I meet with my instructors often just through email or by actually going to their office and that is where .

Most of my learning occurs when we have an advanced statistics class some of those concepts are not always easy to understand and it might take you I mean several hours before you fully understand one of those concepts but meeting with your professor really speeds some of that understanding up cons obviously expense and geographical .

Limitations you have to move if you want to get to some of the top schools perhaps now let's get to the portion that most of you are probably looking forward to which is the difference in the curriculum of the two programs so i've cfa lined out on the left which are really just the main topics covered in .

The cfa and on the right i have most of the core courses and some elective courses from a master's program in math finance now I will tell you that there is a lot of overlap and even with CFA level one there is a lot of overlap between the master of Finance and the CFA so I tried to line these up so there's they are easy to compare but if .

You look at CFA one of the first thing they start they start with is quantitative methods the closest thing we have to that is our cross section and time series analysis course which both of these things are really just an advanced statistics course and I'm just still biased towards the master's program because while the CFA talks .

About the statistical test that you need to know in the master's program we actually perform the tests using SAS and using real data and don't you're wrong CFA may use small data sets and ask your perform about hand it's just not the same as using an actual programming language to do that other things that are similar CFA has a fixed income .

Section we have a fixed income course CFA has a derivative section we have a whole derivatives course then one of the big differences is that CFA spends a lot of time on ethics and standards and I can tell you it is just a lot of very dry reading and that's what that starts with we do not have that in the masters not saying it's not important but it is .

Just a long dry process of reading the other thing and well really the big part where the master's program starts to differ from the CFA is through the elective courses like we have a quantitative risk management course which is one of the most useful courses at UNCC where someone from Wells Fargo actually .

Comes and teaches it to us and they're in Wells Fargo's risk Department and the way the course works is they'll pull and say maybe take Apple the historical adjusted prices for Apple for the last two years and I want you to calculate the expected shortfall you using this method and you can use any programming language you want and just .

Of course like that is the perfect example of why I'm biased towards the master's program because there's nothing in CFA that is going to give you that type of experience as using a programming language to compute some desired tasks that the professor gives you so despite my obvious bias towards the master's program I do believe CFA .

Has a place but I believe that place is strictly in continuing education and I'm going to explain why here if you look at some advanced financial positions up job postings a lot of them that will say well we prefer that you have a master's degree and/or CFA designation so I agree that the CFA designation might get you an interview but at this point I've .

Interviewed with Wells Fargo BB&T and Ally financial and all of them have asked me technical questions that I would not have known if I just pursued the CFA and let me give you an example one of the questions was do you understand logistic regression and could you perform it in SAS if you can perform it in SAS what's the procedure to .

Perform it in SAS and that's just something that you cannot answer if you only stick with a CFA program if you do a master's program and get some exposure to SAS while learning logistic regression you're going to be in a much better position to answer questions like that so I do believe that CFA is useful and I will probably if I do continue on .

In the program it will be for continuing education maybe a couple years after I finish out my master's program if I feel like I start forgetting some things I imagine that CFA levels 2 & 3 will do a great job of helping me remember some of the things I forgot from the master's program but apart from that I probably won't continue all in past level one .

Unless my employer is paying me or paying for the exams so the finish up here I believe the master's font Master of Science in math finance or financial math or financial engineering takes definite precedence over the CFA people in my programs are still doing the CFA and the frm to continuing education .

And just maybe boost their risk management chops but as a whole I still believe that the Masters is the core education that you need in order to get some of these jobs and as I said in the last slide employers are more concerned from what my experience is with your technical abilities and your application of the financial knowledge rather than .

Just the financial knowledge on its own so that's why I believe that the master's program takes precedence over the CFA I'm sure a lot of you out there probably disagree with me if you are CFA charterholders and you think that I'm completely wrong I invite you to comments and we'll share a discussion but I appreciate you watching please .

Give me a like if you enjoy this video and it helped you out


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