Derman, Emanuel
My Life as a Quant
Reflections on Physics and Finance
  1. Edition - October 2004
30.90 Euro
2004. 304 Pages, Hardcover
ISBN-10: 0-471-39420-3
ISBN-13: 978-0-471-39420-4 - John Wiley & Sons
Sample Chapter
Short description
As investment firms increasingly rely on advanced quantitative financial models to generate profits, large "quant" departments staffed by former physicists, mathematicians, and computer scientists have become routine on Wall Street. Emanuel Derman, one of the first physicists to move to Wall Street, is its most well-known quant whose career path parallels the growth of quantitative modeling. My Life as a Quant traces his pilgrim's progress from ambitious academic scientist to managing director and head of the renowned Quantitative Strategies group at Goldman, Sachs & Co., one of the world's most elite investment firms. Derman reveals his experiences learning to adapt the methods of science to finance and working with some of the finest minds in the business, including Fischer Black (with whom he developed the widely used Black-Derman-Toy model of interest rates). He also recounts his adventures with other quants, traders, and other high fliers on Wall Street.
From the contents
Prologue: 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?
Chapter 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.
Chapter 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.
Chapter 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.
Chapter 4. A Sentimental Education Oxford's civilized charms. One physics paper leads to another. English idiosyncrasies. The anthroposophists.
Chapter 5. The Mandarins.
Research and parenthood on New York's Upper East Side. A good life, but ... the difficulties of a two-career family.
Chapter 6. Knowledge of the Higher Worlds.
A two-city family. New age meditations. Karma. Goodbye to physics.
Chapter 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.
Chapter 8. Stop-Time.
Wall Street beckons. Interviewing at investment banks. Leaving the Labs.
Chapter 9. Transformer.
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.
The history of options theory. Meeting and working with Fischer Black.The Black-Derman-Toy model.
Chapter 11. Force of Circumstance.
Manners and mores on Wall Street. The further adventures of some of my acquaintances. Volatility is infectious.
Chapter 12. A Severed Head.
A troubled year at Salomon Bros. Modeling mortgages. Salomon's skill at quantitative marketing. Mercifully laid off.
Chapter 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.
Chapter 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.
Chapter 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.
Chapter 16. The Great Pretender.
Full circle, back to Columbia. Physics and finance redux. Different endeavors require different degrees of precision. Financial models as gedanken experiments.
Acknowledgments.
Index.
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