My Life As A Quant: Reflections on Physics and Finance

Abstract

In My Life as a Quant, Emanuel Derman relives his exciting journey as one of the first high-energy particle physicists to migrate to Wall Street. Page by page, Derman details his adventures in this field-analyzing the incompatible personas of traders and quants, and discussing the dissimilar nature of knowledge in physics and finance. Throughout this tale, he also reflects on the appropriate way to apply the refined methods of physics to the hurly-burly world of markets. 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 Co-lumbia. 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 anthro-posophists. 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 co...

Physics and financial economics (1776–2014): puzzles, Ising and agent-based models

“…Many physicists and economists have reflected on the relationships between physics and economists. Let us mention some prominent accounts (Zhang 1999, Bouchaud 2001, Derman 2004, Farmer and Lux 2010. Here, we consider rather the history of the inter-fertilization between the two fields, providing an hopefully general inspiring perspective, especially for the physicist aspiring to work in economics and finance.…”