Building a Quant R&D Team, v2, 12/26/06

Building a Quant R&D Team, v2, or
Multi-collinearity and the Recursive Development Team

The idea that there are a finite number of viable trades in any given time frame creates a natural recursive structure for a development team that encourages teamwork, promotes knowledge-sharing and mentoring and naturally aligns the goals of the firm with the goals of the employees in the firm. This development framework comes with built-in performance metrics as development progress and profitability are measured against the viable number of trades in a timeframe.

The basic development team framework:
Add a senior researcher/developer and assign to a market and time frame.

When the developer hits the multi-collinearity point, pass the strategy - the complete collection of systems - off to maintenance for trading and monitoring and roll the experienced developer to a new market and/or timeframe.

Repeat per market and timeframe.

Alternatively, here is a slightly more sophisticated model:
Pair an experienced developer/researcher and with a junior one and assign the team to a market and timeframe.

Develop the timeframe to the point when the junior researcher reaches competence or development reaches saturation.

Roll the experienced developer to a new timeframe at which point the junior developer takes over final development, monitoring and maintenance of the developed systems and timeframe.

Repeat per market and timeframe.

How beautiful this is!
It allows both natural maturation and attrition - productive people will rise and roll through timeframes and those that aren't quite a fit will fall to maintenance roles or attrition out.

Firm knowledge is maintained as the veterans pass on knowledge to their junior partners.

Managers can easily monitor a team's progress using metrics based on the progress towards saturation, i.e., reaching the number of viable trades in the market. Note that the number of viable trades in a market is an inherent profitability metric and thus measures both development progress and profitability.

An MLM-type compensation plan promotes knowledge-sharing, mentoring and teamwork. Merit-based compensation is natural, easy and objective and the firm's goals naturally align with individual goals.

A beautiful, beautiful R&D model.

Henry Carstens
Vertical Solutions