Personal statement in Finance field

One day in class, during my master’s studies, my professor explained the vital role of options as a new tool to reduce the risk for investors or companies. He told us that the wide use of options is like adding the flavoring to original dishes, the underlying assets, to bring unexpected effects. On the other hand, options used to hedge the risk sometimes get some new threats in real life. The corporate risk management problem in using options has been paid much attention by regulation in every country. This is where my professor stopped, saying, “Because more details belong to Ph.D.-level finance courses, we won’t dig deeper right now”. That professor’s word also excited me and planted the initial seed of pursuing a Ph.D. I want opportunities to explore those ideas.

 

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Far before starting my master’s study in Case, I had set my career plans in the field of risk management, namely an enterprise risk manager in the global 500 companies in the short-time and a university professor focusing on risk management in the long run. I majored in engineering mechanics in bachelor to accumulate more knowledge in mathematics and language programming. After finishing my graduate studies in the risk management analytics track in MSF-Finance, I had planned to go to work. I used to believe what I learned would be enough for me to achieve these goals. However, what the professor said let me realize the existing theories are incompatible with industry requirements. 2008 financial crisis caused by the abuse of CDS and the 2020 crude oil event of Bank of China showed the gap between existing theories and facts. The financial industry needs progressive ideas as its foundation, but abuse of theory by practitioners in the field still occurs so often. It is also necessary to have someone to guide them use theory correctly. Under the circumstance, creating knowledge to fill the gap and directing students to use theories properly have become extremely urgent. There is still a long uphill journey, and it is far from enough to rely on my current capacities. I hope to speed up the process by pursuing a doctor’s degree, because in I can get instructions from professors in relevant field and creating knowledge by conducting research in PHD program.

 

Keeping these goals and thoughts in mind, I began to pay close attention to the doctoral program in prestigious universities. Finally, I focus on the XXX program at XXX University. By further understanding, I found it felt like a program made for me. Let alone how its teaching content and training direction fit with my career plans and research orientation; it seems that my experiences have been prepared for studying this program.

 

For example, during my undergraduate studies, I once finished a research project, the Effect of RMB Exchange Rate on Terms of Trade. By collecting and processing various quarterly macro indicators in China over the past 20 years, I used SPSS to establish a regression equation to explore the influencing factors, especially for the RMB exchange rate. After a systematic study of risk management, I found my previous study’s feasibility and practicality from a new perspective. Especially for the enterprises engaging in import and export business and foreign economic activities and enterprises that have foreign currency loan business in Banks, exchange rate risk must be valued.

 

The Corporate Risk Management course, during my master’s program, provides me withmore opportunity to research in corporate risk management problem in real life. In January 2020, I researched liability management in GM, Inc and explored the difference between the financial and non-financial institutions’ immunization strategy from financial statements. According to the relationship between operating cash flows and interest rate in GM, Inc, I visualized the separate P&L when the firm chose different debt issue strategies to hedge the interest rate risk actively in real life. After comparing the current and standard hedge strategy based on the cost of debt, I suggested an alternative interest rate risk management policy for the firm. From this project, I learned that an active risk management strategy may lead to a high risk exposure to a firm when the analyst speculated the market and made wrong expectation. March of the same year, I did a case study about Cephalon, Inc. I analyzed and evaluated financial problems and threats the company may face after a drug is approved by FDA for production and sale. The firm attempted to make profit in option transaction to fill the short in money. However, the option expired due to the delayed meeting of panel and finally the application of drug did not get approved by the FDA, which leads to drop down in stock price and huge loss for Cephlaon, Inc.Analysts in both firms at that timehad a great deal of theoretical knowledge and made professional suggestions for their supervisors, which looks like an appropriate corporate risk management strategy with no doubt. Nevertheless, the complexity of derivatives and corporate risk management made these firm faced huge loss and also enlightened me the importance to focus this field in my future study.

 

The Empirical Finance course of my master’s program refreshed my memory of Econometrics and equipped me with SAS tools to conduct empirical research in finance. In this individual project, I gathered financial information of thousands of companies from WRDS platform to examined value implication to the announcement of stock splits. After filtering out non-significant independent variables, I quantified the effect of announcement on market reaction by conducting linear regression analysis and investigated the determinations of company’s decision to stock splits by building logistic regression framework using SAS. Meanwhile, I plotted graphs to test market efficiency and processed summary statistics of some key variables in regression model. During the empirical research, I finished a 3000-word essayand concluded that the market will react positively but not efficiently to stock splits in the 10-day window, especially for those companies with small size, high beta and paying dividend recently.Most importantly, it was my first time working with SAS. While the beginning was tough, the process of learning was exciting and beneficial for me in the future empirical study in PHD program.

 

In Python Programming with Application in Finance, I have not only grasped techniques of Pandas to implement data analysis, but also learned and applied lots of research, analysis, and calculation methods to price derivatives. For instance, I implemented the Binominal-Trees Model to price European Option and American Option respectively and priced the exotic options, such as exchange option, chooser option, and compound option, based on the Monte Carlo Simulation method. What’s more, in one project about delta dynamic hedging strategy, I calculated the Greeks in European Option and analyzed the relationship with some risk factors.By constructing investment portfolio based on hedging strategy and visualized the daily P&L in Python, I learned the impact of a factor on the overall risk and the significance of risk management for a company’s operation. A slight move in one part may indeed affect the situation as a whole. More importantly, my skills in comprehending complex derivative models and manipulating data with Python got significant improvement.

Moreover, the three internships in the New York City, which were intended to train my practical abilities and helped me adapt to the working environment in advance for preparing for graduation, also laid a foundation for my future doctoral study. In June 2019, I started a three-month internship at the Bank of China in Queens Branch, NY. My primary responsibility was to set up a credit rating model to complete clients’ credit risk assessments as a risk management intern. Under LexisNexis, DowJones, and internal systems, I independently finished due diligence on 800+ international clients and arranged and analyzed all collected information. What I learned most from experience is integrating all I have learned together to solve a complex problem with team members. From August to October 2020, I finished a two-month internship as a risk analyst in the Third Seven Group and joined a project to build credit risk model with algorithm. Firstly, I cleaned, transformed, and structured data in a 400MB dataset and completed a series of tests. Then, I built the PD, LGD and EAD models with Python using a machine learning algorithm, like two-stage regression model. Finally, I converted PD model to credit card model andvalidated models with indicators such as AUC, KS, and Gini, and visualized relevant curves. My data analysis skills and risk modeling skills are powerfully honed in the experience. Besides, working as a financial analyst in the Bank of China and interning as a financial consultant at AXA offered many chances to improve industry analysis skills and problem-solving ability.

 

Nevertheless, as I mentioned earlier, the gap between existing theory and fact and the phenomenon of abuse of theory still may lead to disastrous consequences as the same as the financial crisis of 2008. Plus, many unpredictable and even uncontrollable factors may bring huge fluctuations to the market, like COVID-19 this year. Considering all these, I shoulder heavy responsibilities in realizing my long-term goal, being a university professor to correctly guide students and help them further in the financial field. I still need a lot of accumulation and practice. XX program provided by XX University is exactly aiming at cultivating students’ abilities in risk prediction, analysis, and management. Besides more in-depth and practical courses, the research topics and case studies it provides also keep up with current events, which would help me keep abreast of the global economic and political situations and unearth hidden risk information. Is not such a project just what I need?

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