Wall Street is no longer the old-fashioned business it once was. In recent years, investment banks and hedge funds have increasingly turned to quantitative trading strategies and derivative securities for their profits, and have raided academia for PhDs to model these volatile products and manage their risk. Nowadays, the fortunes of firms and the stability of markets often rest on mathematical models. "Quants"the scientifically trained practitioners of quantitative finance who build these modelshave become key players on the Wall Street stage.
And no Wall Street quant is better known than Emanuel Derman. One of the first high-energy particle physicists to migrate to Wall Street, he spent seventeen years in the business, eventually becoming managing director and head of the renowned Quantitative Strategies group at Goldman, Sachs & Co. There he coauthored some of today’s most widely used and influential financial models.
Physics and quantitative finance look deceptively similar. But, writes Derman, "When you do physics you’re playing against God; in finance, you’re playing against God’s creatures." How can one justify using the precise methods of physics in the frenzied world of financial markets? Is it reasonable to treat the economy and its markets as a complex machine? Or is quantitative finance merely flawed thinking masquerading as science, a brave whistling in the dark?
My Life as a Quant is Derman’s entertaining and candid account of his search for answers as he undergoes his transformation from ambitious young scientist to managing director. His book is simultaneously wide-ranging and personal. He tells the story of his passage between two worlds; he recounts his adventures with physicists, quants, options traders, and other highfliers on Wall Street; he analyzes the incompatible personas of traders and quants; and he meditates on the dissimilar natures of knowledge in physics and finance. Throughout his tale, he reflects on the appropriate way to apply the refined methods of physics to the hurly-burly world of markets.
My Life as a Quant is a unique first-person story and a perceptive and revealing exploration of the quantitative side of Wall Street.
|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.
Table of Contents
|Prologue: The Two Cultures||1|
|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 1||Elective Affinities||17|
|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 2||Dog Years||29|
|Life as a graduate student|
|T. D. Lee, the brightest star in the firmament|
|Seven lean years|
|Getting out of graduate school only half-alive|
|Chapter 3||A Sort of Life||53|
|The priesthood of itinerant postdocs|
|Research isn't easy|
|Almost perishing, then publishing|
|The delirious thrill of collaboration and discovery|
|Chapter 4||A Sentimental Education||65|
|Oxford's civilized charms|
|One physics paper leads to another|
|Chapter 5||The Mandarins||77|
|Research and parenthood on New York's Upper East Side|
|A good life, but...the tensions of twin careers|
|Chapter 6||Knowledge of the Higher Worlds||85|
|A two-city family|
|New age meditations|
|Goodbye to physics|
|Chapter 7||In the Penal Colony||95|
|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|
|Chapter 10||Easy Travel to Other Planets||143|
|The history of options theory|
|Meeting and working with Fischer Black|
|The Black-Derman-Toy model|
|Chapter 11||Force of Circumstance||175|
|Manners and mores on Wall Street|
|The further adventures of some acquaintances|
|Volatility is infectious|
|Chapter 12||A Severed Head||191|
|A troubled year at Salomon Bros|
|Salomon's skill at quantitative marketing|
|Mercifully laid off|
|Chapter 13||Civilization and Its Discontents||203|
|Goldman as home|
|Heading the Quantitative Strategies Group|
|The Nikkei puts and exotic options|
|Nothing beats working closely with traders|
|Financial engineering becomes a real field|
|Chapter 14||Laughter in the Dark||225|
|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 15||The Snows of Yesteryear||251|
|Wall Street consolidates|
|Clothing goes casual|
|Moving from equity derivatives to firmwide risk|
|The bursting of the Internet bubble|
|Taking my leave|
|Chapter 16||The Great Pretender||265|
|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
"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
Most Helpful Customer Reviews
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.
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.
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.
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.
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.
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.
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.
'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.
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.
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.
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.