My Life as a Quant: Reflections on Physics and Finance

My Life as a Quant: Reflections on Physics and Finance

by Emanuel Derman


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Product Details

ISBN-13: 9780471394204
Publisher: Wiley
Publication date: 09/28/2004
Pages: 304
Product dimensions: 6.30(w) x 9.30(h) x 1.02(d)

About the Author

Emanuel Derman is a principal and Head of Risk at Prisma Capital Partners and a professor and Director of the Program in Financial Engineering at Columbia University. He was formerly a managing director at Goldman, Sachs & Co., which he joined in 1985 after an initial career in academic life and at AT&T Bell Laboratories. He is the co-creator of the widely used Black-Derman-Toy interest rate model and the Derman_Kani local volatility model. 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 has a PhD in theoretical physics from Columbia University and is the author of numerous articles in elementary particle physics, computer science, and finance.

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Table of Contents

Prologue: The Two Cultures1
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?
Chapter 1Elective Affinities17
The attractions of science
The glory days of particle physics
Driven by ambitious dreams to Columbia
Legendary physicists and budding wunderkinder
Talent versus character, plans versus luck
Chapter 2Dog Years29
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
Chapter 3A Sort of Life53
The priesthood of itinerant postdocs
Research isn't easy
Almost perishing, then publishing
The delirious thrill of collaboration and discovery
Chapter 4A Sentimental Education65
Oxford's civilized charms
One physics paper leads to another
English idiosyncrasies
The anthroposophists
Chapter 5The Mandarins77
Research and parenthood on New York's Upper East Side
A good life, but...the tensions of twin careers
Chapter 6Knowledge of the Higher Worlds85
A two-city family
New age meditations
Goodbye to physics
Chapter 7In the Penal Colony95
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
Chapter 8Stop-Time117
Wall Street beckons
Interviewing at investment banks
Leaving the Labs
Chapter 9Transformer129
The Financial Strategies Group at Goldman, Sachs & Co.
Learning options theory
Becoming a quant
Interacting with traders
A new cast of characters
Chapter 10Easy Travel to Other Planets143
The history of options theory
Meeting and working with Fischer Black
The Black-Derman-Toy model
Chapter 11Force of Circumstance175
Manners and mores on Wall Street
The further adventures of some acquaintances
Volatility is infectious
Chapter 12A Severed Head191
A troubled year at Salomon Bros
Modeling mortgages
Salomon's skill at quantitative marketing
Mercifully laid off
Chapter 13Civilization and Its Discontents203
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
Chapter 14Laughter in the Dark225
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
Chapter 15The Snows of Yesteryear251
Wall Street consolidates
Clothing goes casual
Moving from equity derivatives to firmwide risk
The bursting of the Internet bubble
Taking my leave
Chapter 16The Great Pretender265
Full circle, back to Columbia
Physics and finance redux
Different endeavors require different degrees of precision
Financial models as gedanken experiments

What People are Saying About This

From the Publisher

"There are few "gentlemen bankers" left these days. Nor is there much room in the great financial houses for anything that smacks of the amateur spirit. That is why Emanuel Derman's memoirs are so compelling…Derman's wry humour and sense of irony are apparent throughout the book."- Financial Times

"That sense of being an intruder in outlaw territory lends an intriguing mood to Derman's My Life As a Quant, a literate and entertaining memoir."-Business Week

"engaging"—(CFO Europe, October 2005)

"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. Derman’s 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

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My Life as a Quant: Reflections on Physics and Finance 4.1 out of 5 based on 0 ratings. 12 reviews.
breic2 on LibraryThing 8 months ago
A memoir describing Derman's career. After postgraduate work in physics, he transitioned to finance, and spent seventeen years as a "quant" at Goldman Sachs.
gq2000 on LibraryThing 11 months ago
For a quant, Derman certainly knows how to put complicated ideas and abstract concepts in simple words, and he has a agreat sense of humor that makes his life stories much more fun to read.
dvf1976 on LibraryThing 11 months ago
I enjoyed the biography aspect of the book and I really enjoyed the parts about programming under Unix/C.The financial parts, though, left me pretty lost. A glossary with some brief financial definitions of 'zero-coupon', 'put', 'strike', 'option', and others would have been helpful.
name99 on LibraryThing 11 months ago
Pretty much what you would expect, including the discussion of how badly academic physicists are treated. Unfortunately not nearly as technical regarding either finance math or how physics idea (eg gauge theory or path integrals) are used thereby as I had hoped for.
Anonymous More than 1 year ago
Guest More than 1 year ago
Dr.E.Derman's book offers a rare and useful insight into the relatively complex world of Finance,where information asymmetry can be potentially dangerous. His experiences and encyclopedic knowledge are a godsend and help us understand both the benefits and,more importantly,the pitfalls of financial instruments and financial innovation. Dr.E.Derman is a rare genius,a scientist,a financial engineer,and last but not the least,a good human-being all rolled into one.
Guest More than 1 year ago
This excellent autobiography covers the emotional life of a thoughtful man. Emanuel Derman examines his conscience dispassionately and honestly, offering a sometimes poignant account of his descent from the world of pure science to the hustle of Wall Street. His memoir flows like a conversation, albeit with many tangents. You¿ll learn more than you want about personnel changes at his former firms, but you¿ll also gain rare insights into how Wall Street makes decisions, plus a few excellent points about the inadequacy of financial theory as science. Derman¿s descriptions of options theory and financial models sometimes approach clarity, but may be far beyond the lay reader¿s understanding. We recommend this book to avid students of Wall Street and to any academic contemplating a move there. General readers who would enjoy Derman¿s reminiscences, and who do not mind tackling some dense scientific and financial material, will find an in-depth life story with moving reflections on the disparity between youthful ideals and mature compromises.
Guest More than 1 year ago
After reading Emanuel Derman's memoir, 'My Life as a Quant', I realized just how precise the selection of each word in the title phrase is. Yes, Derman is indeed one of the foremost experts in the field that is known today as 'financial engineering' and many on Wall Street would name him first if they were asked to give an example of a great QUANT. But far from being just an account of the professional field, this book is much more - it is an account of LIFE, its journeys and decisions, the people and the times. But ever so modest, even while philosophizing, Derman did not forget to put the word 'MY' in the title - it must have been the instinct of a physicist and a financial modeler who has seen too many theories stretched beyond their range of applicability that made him to explicitly narrow down the claim to the universal truth about the life of quants. The book is touchingly personal, almost impossibly honest for the world of Wall Street, where everyone keeps their cards close to the vest, and no one likes to admit being even slightly wrong. Following the footsteps of his favorite anthroposophist Rudolf Steiner, Derman opens to the readers the complexities and confusion of life, the mistakes as well as the great accomplishments, the accidental as well as the purposeful. This book is a must read for any scientist who contemplates a career in finance. Moreover, it is a must read for any manager who faces the everyday challanges of keeping those unruly quant minds in line. And finally, it is a must read for everyone else who could use something more intellectual than Dilbert cartoons (and even wittier at times -- if you can read between the lines) as a conversation topic about keeping one's sanity in the corporate world.
Guest More than 1 year ago
'My Life as a Quant' is not just a book that everyone on Wall Street should read. Given the highly quantitative nature of finance, practitioners from all parts of the trading world will find Derman's comments illuminating and insightful. It is the book most quants (that is, physicists turned quants) have been dreaming of writing since they were given access to the world of finance. Derman describes the common path of a physicist's acceptance of his own mediocrity in the last paragraph of pag. 28. Each one of us starts their career in physics by dreaming of becoming the next Einstein. Soon we find ourselves envying the post-doc who has been invited just to give a talk somewhere or has published a 4 page Phys. Rev. Lett. soon to be forgotten. He does a wonderful job of making clear that in order to be successful on Wall Street you really need to get your hands dirty. For every theoretician on Wall Street, a few that are equally good at computers are necessary as well. This is more true today than ever before. Also, he points out a cathartic quality of doing simple and useful work that others value. During stretches of low or no inspiration (99% of the time), it keeps you afloat, paid, and with no feelings of deep frustration. To everyone, Derman is that physicist who made the transition from particle physics to doing something great at Goldman Sachs. That much is certainly true. In addition, he is also a compassionate gentleman. I know of many people around the world who he has helped especially at the very beginning of their careers. He feels for cranks too. Derman has proved to be a brilliant writer. He left signs of this in previous publications by citing Aristotle more often than martingales. You always had the impression that he was a writer trapped in the format of Goldman Sachs Quantitative Strategies Research Notes and its disclaimers. Wiley has finally unleashed him.
Guest More than 1 year ago
I normally do not read biographies, and I don¿t think I have read an autobiography since I was forced to read one in high school. Most autobiographies are simply exercises in celebrating the successes of a great life. I chose this one because Derman has always been a fascinating person. One of the first physicists to make it big on Wall Street, he¿s best known as co-creator of the Black-Derman-Toy term structure model and the Derman-Kani volatility smile model. I had read his finance research, some of his lighter reading, and had met him. I knew he wasn¿t one to gloat. This book delivers everything I expected. Offering fascinating insights into the culture of organizations he has worked for, such as Goldman Sachs, Bell Labs, Salomon Brothers, and the crazy world of academic physics, Derman takes us on an exciting trip through a career that parallels the emergence of finance as a scientific discipline on both Wall Street and in academia. What fascinated me the most is how he describes his achievements in very modest terms, carefully explaining what he discovered but without trying to make you think that his findings changed all life on earth from that point forward. And he is remarkably candid about his mistakes, which humanize this book in a way rarely seen when someone is telling their personal story. If you¿re interested in finance, physics, academia, or you¿d just like to read an autobiography the way it ought to be written, this book is for you.
Guest More than 1 year ago
As the path from Physics to Wall Street is looking more and more like a highway these days, Derman's book is especially relevant. I dare say there are Wall Street shops that have bigger Physics Departments than some Universities. His journey from Physics to Finance is a fascinating one and sure to entertain. One anecdote even had me laughing out loud on the train during my morning commute. Derman is highly regarded in his field. It would be a surprise to encounter a Quantitative Analyst (Quant) working in Finance who is not familiar with at least one of his models. He is also an excellent writer who is able to explain difficult concepts to the lay reader. I found his descriptions of what it is like to work both at Goldman Sachs and Salomon Brothers especially illuminating. His portrait of Fisher Black was especially poignant. As a former Physicist who now works as a Financial Engineer, Emanuel's book really hit home. It was exciting to see a story close to my own so delightfully rendered.
Guest More than 1 year ago
Quants are becoming the new 'masters of the universe.' Reducing money making from art to science, Derman personifies this new breed. A natural storyteller, he writes with the eye of a novelist, the insight of a physicist, and the instincts of a trader. Buy the book.