Quote from buzzy2:
I went through the PhD, started focusing on exotic derivatives for an employer, ended up trading futures outright on my own. So don't fall for snob advice and thinking the "most" money is in exotics.
Deringer implies only the most exotic derivatives are worth trading and index futures are for the less educated crowd. Not true. I've seen kids right out of college employed as trading assistants for credit derivtaives/ exotics desks at i-banks. Trading these derivatives is as simple as selling for more than what you bought them. What's so complicated about it? Without a PhD you won't be able to price. Correct. But what's pricing useful for? try making lots of money with one of those multi-factor, fractionally integrated stochastic volatility yield curve models.. nothing... so you go to risk management replication (market making) or structuring.
Exotics are profitable for i-banks because of underwriting fees. They have access to lots of suckers that buy their hype. That's how they make their money. You don't need to have a PhD for hyping, and in fact, there are lots of MBAs and college boys/girls doing it. They hire PhDs to gain authorithy over their sucker clients. This is a 90% persuasion/selling business. This is not necessarily trading as in taking proprietary positions.
On the other hand, there are quite sophisticated PhD-designed trading models out there to trade futures outright, James Simons' Renaissance Capital is an example.
There are also sophisticated trading models for exotics but not necessarily more profitable than those for outrights.
Second, about employment prospects.
As I said I started with the quant career path. I discovered I strongly dislke working for someone else. So I tried to figure out some way I could make some bucks for myself trading exotics. I went to outrights and forgot about exotics simply because I realized the most money is made on directional trades and exotics have too many other distractions like time decay vega this-risk that-risk etc etc.
Bottom line, specializing in exotics is worthwhile only if you want to work for someone else or manage OPM.
Getting an MBA is not an impediment for either. The guy from Citadel started trading convertibles as a college kid, he needed no PhD to do that.
In any case if you lack any PhD-taught skill you can go and hire one for cheap.
And your physics background is perfect because you have solid basics in maths and possibly programming.
MBAs have so much more options in the job market. The market for PhDs is quite small. Those wilmott.com ads are just a tiny portion of the market... plus there's always lots of hype from headhunters.
Most of those jobs are just database maintenance, programming, lowly employee jobs. There are also "glamour" jobs like "phD exotic derivatives strategist for 50 gazillion global fund" they are OK if you like to hang out with snobs, and work 15 hours a day 6/7 days a week plus they are still not as well paid as smart MBAs
Get a PhD only, I mean only, if you want to teach.
