In "My Life as a Quant", Emanuel Derman relives his exciting journey as one of the first high-energy particle physicists to migrate to Wall Street. Page by page, Derman details his adventures in this field - analyzing the incompatible personas of traders and quants, and discussing the dissimilar nature of knowledge in physics and finance. Throughout this tale, he also reflects on the appropriate way to apply the refined methods of physics to the hurly-burly world of markets.
Physics and finance. What quants do. The Black-Scholes model. Quants and traders. Pure thought and beautiful mathematics can divine the laws of physics. Can they do the same for finance?
1. Elective Affinities
The attractions of science. The glory days of particle physics. Driven by ambitious dreams to Columbia. Legendary physicists and budding wunderkinder. Talent vs. character, plans vs. luck.
2. Dog Years
Life as a graduate student. Wonderful lectures. T.D. Lee, the brightest star in the firmament. Seven lean years. Getting out of graduate school, only half-alive.
3. A Sort of Life
The priesthood of itinerant postdocs. Research isn’t easy. Almost perishing, then publishing. The delirious thrill of collaboration and discovery.
4. A Sentimental Education Oxford's civilized charms. One physics paper leads to another. English idiosyncrasies. The anthroposophists.
5. The Mandarins
Research and parenthood on New York's Upper East Side. A good life, but ... the difficulties of a two-career family.
6. Knowledge of the Higher Worlds
A two-city family. New age meditations. Karma. Goodbye to physics.
7. In the Penal Colony
The world of industry - working for money rather than love. The Business Analysis Systems Center at Bell Labs. A small part of a giant hierarchy. Creating software is beautiful.
8. Stop-Time
Wall Street beckons. Interviewing at investment banks. Leaving the Labs.
9. Transformer
The Financial Strategies Group at Goldman, Sachs & Co. Learning options theory. Becoming a quant. Interacting with traders. A new cast of characters.
10. Easy Travel To Other Planets
The history of options theory. Meeting and working with Fischer Black.The Black-Derman-Toy model.
11. Force of Circumstance
Manners and mores on Wall Street. The further adventures of some of my acquaintances. Volatility is infectious.
12. A Severed Head
A troubled year at Salomon Bros. Modeling mortgages. Salomon’s skill at quantitative marketing. Mercifully laid off.
13. Civilization & Its Discontents
Goldman as home. Heading the Quantitative Strategies Group. Equity derivatives. The Nikkei puts and exotic options. Nothing beats working closely with traders. Financial engineering becomes a real field.
14. Laughter in the Dark
The puzzle of the volatility smile. Beyond Black-Scholes: the race to develop local-volatility models of options. The right model is hard to find.
15. The Snows of Yesteryear
Wall Street consolidates. Clothing goes casual. I move from equity derivatives to firmwide risk. The bursting of the internet bubble. I take my leave.
16. The Great Pretender
Full circle, back to Columbia. Physics and finance redux. Different endeavors require different degrees of precision. Financial models as gedanken experiment.
About Emanuel Derman
Emanuel Derman has a PhD in theoretical physics from Columbia University. He is the author of numerous articles in elementary particle physics, computer science, and finance, and a coauthor of the widely used Black-Derman-Toy interest rate model and the Derman-Kani local volatility model. After an initial career in academic life and a stint at AT&T Bell Laboratories, he moved to Goldman, Sachs & Co. in 1985, where he became a managing director in 1997. Among his many awards and honors, he was named the SunGard/IAFE Financial Engineer of the Year in 2000 and was appointed to the Risk Hall of Fame in 2002. He is currently the Director of the Program in Financial Engineering at Columbia University, a columnist for Risk magazine, and a risk advisor to an investment management company. He lives in New York City.
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