If you walk into one of the two Netcentric Financial Markets Labs at the University of Maryland’s Robert H. Smith School of Business, you might just find an undergraduate finance student at a Bloomberg terminal calculating a real-time hedge for a variance-swap contract. In the other lab, an MBA student may be sitting at a Reuters terminal, using Maximum Likelihood Estimation to calibrate a Variance-Gamma model for equity prices, as he learns about the importance of skewness and kurtosis in characterizing equity price distributions.

It is an exciting and sophisticated quantitative learning environment. The financial labs are designed both for research and teaching: the easy access to real-time and historical market data allow faculty and students to conduct cutting-edge research on market efficiency, security pricing, and a host of other investment management and corporate finance topics, while simultaneously allowing faculty to promote the importance of understanding and applying the latest research through lab class sessions.

A number of courses, including the capstone course of the MBA Financial Engineering track, are taught in their entirety in the labs. Other courses use the lab on a one-off basis when concepts and applications can best be demonstrated using the real-time data and software available in the labs. In the labs, students learn both the Bloomberg and Reuters environments. This helps them to learn to think and react quickly to the rapid pace of financial markets, and in the process they are exposed to two widely used technology platforms. Such talents make these students increasingly attractive to top financial institutions.

Smith’s finance department is in the process of working on several outreach programs using the labs. Given its location in the metropolitan Washington, D.C. area, the department plans to use the labs to educate government policy makers and regulators on a variety of issues related to financial markets and institutions. The labs offers the potential to simplify complex and abstract concepts for those with relatively little financial experience, and to do so in a “neutral” educational environment. Through distance learning technology, some aspects of the lab instruction will be integrated into the school’s executive education programs, including its Executive MBA program in China. The department also hopes to reach out to younger underrepresented students during the summer by providing short tailored programs on finance that have the potential to spark their interest in pursuing university degrees in finance.

Charles Lahaie is the operating manager of the labs; Russ Wermers is the faculty director.

By Alexander Triantis, associate professor of finance. Excerpted from his article ‘Giving Students a Taste of the Real World,’ published in the journal Quantative Finance, Dec. 2003, Vol. 3:6. Reprinted with permission. The full article is available online at www.tandf.co.uk.