My Life as a Quant [Hardback]
Reflections on Physics and Financeby Emanuel Derman
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Description of My Life as a Quant"Dermans memoir of his transition from mathematical physicist to expert finance whiz at Goldman Sachs and Salomon Brothers reads like a novel, but tells a lot about brains applied to making money grow." Paul A. Samuelson, MIT, Nobel Laureate in Economic Sciences, 1970 "Not only a delightful memoir, but one full of information, both about people and their enterprise. I never thought that I would be interested in quantitative financial analysis, but reading this book has been a fascinating education." Jeremy Bernstein, author of Oppenheimer: Portrait of an Enigma "This wonderful autobiography takes place in that special time when scientists discovered Wall Street and Wall Street discovered them. It is elegantly written by a gifted observer who was a pioneering member of the new profession of financial engineering, with an evident affection both for finance as a science and for the scientists who practice it. Dermans portrait of how the academics brought their new financial science to the world of business and forever changed it and, especially, his descriptions of the late and extraordinary genius Fischer Black who became his mentor, reveal a surprising humanity where it might be least expected. Who should read this book? Anyone with a serious interest in finance and everyone who simply wants to enjoy a good read." Stephen Ross, Franco Modigliani Professor of Finance and Economics, Sloan School, MIT " a deep and elegant exploration by a thinker who moved from the hardest of all sciences (physics) to the softest of the soft (finance). Derman is a different class of thinker; unlike most financial economists, he bears no physics envy and focuses on exploring the real intuitions behind the mechanisms themselves. In addition to stories and portraits, the book documents, in vivid detail, the methods of knowledge transfer. I know of no other book that bridges the two cultures. Finally, I am happy to discover that Derman has a third career: he is a writer." Nassim Taleb, author of Fooled by Randomness "The quintessential quarky quant, Emanuel Derman has it all. Physicist, mathematician, philosopher, and poet blend together to produce a narrative that all financial engineers will find worth reading." Mark Rubinstein, Paul Stephens Professor of Applied Investment Analysis, University of California, Berkeley
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About Emanuel DermanEmanuel 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.
Contents of My Life as a QuantPrologue: The Two Cultures
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.
Wall Street beckons. Interviewing at investment banks. Leaving the Labs.
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.