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My Life as a Quant

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My Life as a Quant

Reflections on Physics and Finance

Wiley,

15 min read
10 take-aways
Audio & text

What's inside?

Physicist Emanuel Derman underwent wrenching career changes, but shaped the future of Wall Street analysis and academia.

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Editorial Rating

9

Qualities

  • Innovative

Recommendation

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. getAbstract recommends 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.

Summary

Why Physicists Go to Wall Street

Physics is perhaps the most demanding, most revealing science. The nature of gravity, of radio waves, of electricity and magnetism is not self-evident. Diligent physicists revealed it. The modern mystique of physics reached its apogee with Einstein’s intuitive experiments. But how and why did physics make its way to Wall Street? Finance has little in common with electricity, light or other forces of nature, which are what they are regardless of what people think of them. But finance is what it is only because - and as a consequence of - how people think of it. Little about money and finance is immutable. Yet, in recent years, physics has become an integral part of the financial world. More surprisingly, the study of financial economics has become part of the world of physics.

Wall Street firms learned to court physicists because these scientists deal with change over time, a key factor in the markets. Physicists measure change in extremely sophisticated ways. This ability became important to financiers when the stable and highly regulated post-WWII economic order broke down. Only physicists had the mathematical tools and modeling expertise...

About the Author

Emanuel Derman is director of the financial engineering program at Columbia University, a columnist for Risk magazine and a risk advisor to an investment management company. He holds his Ph.D. in theoretical physics from Columbia, and is co-author of the Black-Derman-Toy interest rate model and the Derman-Kani local volatility model.

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