If the current economic crisis created the impression that even finance-industry leaders didn't fully understand the tools they were using, the question arises: What happens next time?

The collapse of huge financial firms such as Lehman Brothers, whose chief executive Richard Fuld is heckled by protesters in Washington, is argument for a more complex understanding of risk in financial models.

The collapse of huge financial firms such as Lehman Brothers, whose chief executive Richard Fuld is heckled by protesters in Washington, is argument for a more complex understanding of risk in financial models.

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As the smoke clears from the carnage left by the current generation's mistakes, business schools are launching or revamping programs to improve the training of the next generation of financial workers.

Dr. Don McLeish, professor in the Department of Statistics and Actuarial Science at the University of Waterloo, is one academic who is reworking his department's financial masters program. The most obvious adjustment is rather symbolic — the name is changing to Master of Quantitative Finance to reflect its highly theoretical focus on the math behind the financial industry. While the September relaunch has been in the works for a while, the current crisis makes the program's focus on formulas all the more relevant.

"We train them to construct the models of tomorrow, not price according to the models of yesterday," says Dr. McLeish, adding that the new generation will have the math skills to develop better formulas than what he calls the "tired old models" of the 1980s and 1990s. By producing industry experts who understand the math enough to question and challenge it, he says the program will ensure that even grads working for pension plans and banks will be able to more actively monitor the holdings.

Creating stronger links with the finance industry is the major focus of another new program at the University of Alberta's School of Business. Dr. Amit Monga, executive professor of finance and director of the MBA program's new finance specialty, has a long business resume including experience at KPMG, as a software entrepreneur, and work in the venture capital and investment banking fields. Based in Toronto and still active in the industry as an adviser and venture capital columnist and blogger, he plans to build on the department's strong research faculty by using his connections to arrange tours of the TSX and meetings with practitioners for a direct perspective on the industry.

"In finance, it's good to have solid research but once you get on Bay Street it's very industry focused," says Dr. Monga. He has also supplemented the classroom offerings with courses on such practical issues as capital markets, making the transition from private to public company, venture capital, and private equity. Internships at major financial firms and international opportunities with banks in Mumbai, India, will round out the two-year program.

At York University's Schulich School of Business in Toronto, professor Dr. Pauline Shum is launching a new Master of Finance (MF) program in August. She, too, hopes to provide students with a background that is more focused and quantitative than an MBA, describing the program as a hybrid professional degree with a research component, appropriate for people who want to enter professions like portfolio management, private equity, venture capital, or investment banking.

Unlike MBA programs where students cover courses in marketing, strategy and other topics, the new 12-month MF will differentiate itself by its in-depth focus on finance. "With an MBA, you have to take all types of courses, so you're limited in terms of how many finance courses you can take," says Dr. Shum. Instead, the MF boasts course titles such as: Options, Futures and other Derivatives; Analysis of Structured Products; and Financial Risk Management.

Dr. Shum, who wrote the proposal for the program and shuttled it through the various levels of university approval, says she looked at the offerings of other institutions, particularly in Europe where specialist finance programs are more prevalent.

She says the current economic crisis has influenced the program's development. "A distinguishing factor of our program, besides the research component, is to incorporate important aspects of finance in response to the current market environment: ethics in finance; securities law; and corporate governance."

Dr. Shum also plans to incorporate a mandatory seminar series where students will hear guest lecturers from the industry discuss issues like responsible investing and sustainability.

She also intends to place a strong focus on academic research. "We're really trying to create someone well-rounded, with the program and with the way we admit students," says Dr. Shum.

There is some frustration among academics because theoretical models have been blamed for the economic downturn. "Quants and models have taken heat for the mess we're currently in, and in my view much of that is misplaced and inappropriate," says Waterloo's Dr. McLeish.

Don't blame the math; blame the inability to use the math properly, he suggests. "The mathematics models used to price them were simplistic; they made many assumptions that most academics would have viewed as inappropriate."

As a result he's determined to give students enough understanding of the mathematics that they can consider more variables and risk factors in their financial models. He believes the "unthinkable" failures of huge financial firms are instructive in terms of making students and finance practitioners take a look at previously unfathomable risks.

The big governance issues of this economic crisis are also destined to be major classroom discussion topics. "Assumptions about liquidity and efficiency are being challenged," says Dr. McLeish. "These are issues that finance has taken for granted: that the system is efficient, that here is a free and frictionless flow of goods and money. That makes the subject cleaner but things like the psychology of market and ethics are being given renewed importance."

Dr. Monga predicts much regulation emerging to monitor hedge funds and private equity, as well as changes to compensation models.

In spite of the economic crisis, these directors see an increase rather than a decrease in the long-term demand for financial workers. "Regulatory agencies should be snapping up smart people by the dozen," says Dr. McLeish. "In my view, demand for people on this side of industry will double."

Dr. Monga sees the demand for specialists growing in all sectors. "There's a need for people with strong corporate finance skill sets in many companies, and we need more people who understand corporate markets."

The specialized training seems intended to encourage another factor as well: the confidence that comes from being really well versed in a focused area. It's a confidence that program directors hope will translate into a future financial worker that speaks up and challenges past models. "The main thing is that they don't regard what is being done in the industry as standard and unquestionable, and that they do carry their own ideas into workplace," says Dr. McLeish.

Special to The Globe and Mail