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.
Emanuel Derman (born c. 1945) is a Jewish South African-born academic, businessman and writer. He is best known as a quantitative analyst, and author of the book My Life as a Quant: Reflections on Physics and Finance
There’s been handwringing over the last few years about all the smart young things coming out of university math and physics programs and heading for the big bucks on Wall Street. Like everyone else, I despise this despicable trend. Of course, Wall Street needs to be shut down. We need to go back to investing money the old fashioned way: in our demesnes, our serfs, and the Church’s indulgences. But reading a memoir like this one, you understand how the flight of brains to the Street can happen even to someone who isn’t an utter money-grubbing, dastardly bastard. Emanuel Derman came to the U.S. from South Africa in the 1960s, got his PhD in physics at Columbia, and took a lonely, low-paying academic job. He moved on to a higher paying but creatively stifling corporate job at Bell Labs (where, though you had a doctorate, your supervisor might only have a masters degree), where he often felt subservient and demeaned. After these positions, the relative freedom of Wall Street looked pretty good, and he joined the quantitative side of Goldman Sachs (that side being the less prestigious one, relative to the trading side, or sales), creating financial models and specializing in interest rate modeling.
Derman is a fluid storyteller and surprisingly literate writer. He quotes Blake and discusses Schopenhauer. He tells you about the plot of Humboldt's Gift, and expresses his admiration for Barfield's History in English Words. What makes the memoir most appealing is his wry modesty and humility. In many of his jobs, he views himself as the fish slightly out of water; he’s rarely the one in the most lofty position. Despite his PhD and intellectual smarts, he’s usually the newbie, forced to catch up with the cool kids, constantly learning the ropes. A story about his search for a PhD advisor at Columbia is particularly charming. He wanted to study with Gerald Feinberg, a young Wunderkind:
"I wanted to be Feinberg's student, but I didn't know how to go about it. Since it was premature for formal arrangements and since I was naturally reticent and shy, I simply began to greet him very politely whenever our paths crossed. Graduate school was a small community. In corridors and elevators and on campus, I was soon running into Feinberg several times a day, always giving him a polite hello and a nice smile. He would reciprocate similarly with a sort of nervous curling of the lips. As time passed, this limbo of flirtatious foreplay continued unabated. I could never find the courage to broach the question of being his student; I supposed I must have hoped it would just happen wordlessly. Every time I saw him I smiled; every time I smiled he bared his lips back at me with greater awkwardness. Our facial manipulations bore increasingly less resemblance to anything like a real smile; each of our reciprocated gestures was a caricature, a Greek theatrical mask signaling friendliness."
Derman never could get up the nerve to actually ask Feinberg and ended up with another professor.
I picked up this book at the library because it was suggested by Goodreads or Amazon (I forget which) as a book I might like to read.
Derman got off to a bad start in the prologue (bottom of page 13) where he wrote, "How does a planet know that it must obey Newton's Laws, or an electron perceive that it must move according to the principles of quantum electrodynamics?" What? Planets must obey Newton's Laws? Electrons must move according to the principles of quantum electrodynamics? This guy, it appears, has got things backward if he thinks nature is somehow required to follow the models science has devised to describe nature. Nature does what it does without any consideration of our attempts to describe it. The models developed by scientists, wonderful as they may be, are not rules that nature must obey and anyone who believes otherwise is kidding himself.
Then on pages 49-50 he wrote, "One summer in the early seventies, during the student protests against the American invasion of Cambodia, Eva [his wife] and I went camping in the Catskills mountains with Chang-Li and his wife. After several days in a tent, cut off from any news, we went to meet my in-laws who were vacationing in a nearby hotel. As we arrived, my father-in-law somberly announced to us that a small bomb had exploded in one of the physics department's bathrooms. Without a moment's hesitation Chang-Li and I leapt in the air for joy, whooping and cheering." Derman was a graduate student in physics at Columbia at the time this occurred. It is difficult for me to comprehend the mind of a person who would rejoice in the bombing of his own department at a university.
But as the book unfolded, it appeared that Derman was able to grow out of his adolescent arrogance and attitudes. I have to admire him for being willing to describe his early experiences with such honesty. He is clearly a brilliant person and I enjoyed his description of how he migrated from an academician in physics to a practitioner in finance. I didn't understand much of what he did as a quant, but it was nonetheless interesting to me. And I was delighted to see in the final chapter that he understands that man-devised models are not rules that nature or financial markets follow but rather attempts to describe what happens in nature and financial markets.
This book was Emanuel Derman (Eman) dryly taking us through his life as a theoretical physicist turned quant. Though the material was fascinating, it was like listening to a boring professor -- dry, bland, and ultimately, self-defeating.
The one thing this book did have that was helpful is lots of context. We learn not only what Derman as a quant does, but why, and what the business context is for it. He also clearly has a passion for explaining theories clearly as opposed to high-brow.
Overall, a good book, but boring. It's closer to 4 stars than 3.
I would recommend How I Became a Quant if you enjoy this kind of material.
Not the most insightful of memoirs, this was more of a catalogue of professional achievements. In the first half, he reveals himself to be an incredibly arrogant physicist. (Full disclosure - in the book , Derman expresses scorn for both solid state physicists and experimentalists -- I myself belong to both of these categories.) In the second half which addresses his financial career, his arrogance is not as noticeable, so either he was actually humbled by his change in career, as he describes in the book, or I have the benefit of not being in his profession.
In the last chapter, he struggles futilely to make philosophical statements about physics and financial math and their respective abilities to describe and predict the tangible world. Despite references to God, he fails utterly in this attempt.
I finally finished Emanuel Derman's "My life as a quant" He is a great story teller. I found the stories around his life in physics much more appealing than his finance life. The most interesting part to me was the fact that his most interesting contributions came way after he finished his PhD. Also his detailed description of the implied tree model is very intuitive and interesting. Still, he is doesn't shy away from highlighting his weaknesses and struggles throughout his career and that makes the whole story appealing to the reader. He does not portray himself as a genius, yet he makes you admire his thirst for progress. One thing that frustrated me a little was that the pace of the text changes throughout the book. Sometimes the story goes very fast and sometimes it drags on an on. I really enjoyed the book and would give it 4.5/5 if I could.
Perilously close to 5/5. Beautifully written, the book gives an insider account of moving from academia to the business world. Contrary to the most part of the bio's and memoirs I have been reading, it refrains from using dialogue (thanks, Derman, for the honesty of not pretending to remember conversations happened decades ago like too many do...) and yet it doesn't make the narration slower a bit. Derman is an excellent writer and his personal anecdotes are well presented, without (again, thanks) indulging in improbably remembrances and over-filled stories, merging admirably well with the point he's trying to make with it. The first chapter is a bit slow if you've had some exposure to basic finance theory, but it prepares the uneducated reader for the rest of the way, which I reckon can be a bit rough for people not "in the know". I still think Derman has put quite a lot of effort in explaining what he refers to, especially with "normal life" comparisons of financial topics.
Overall, I recommend this to whoever is interested in finance, physics, academia and the intersection of the three. I think the main point and the most interesting takeaway is Derman's view on the difference between the world of research in university and the one in a firm. A great read!
The book is a professional biography of Emanuel Derman. The book starts off more a philosophical text discussing the author's evolution through tertiary education which culminated in three post-doctoral stints at some of the world's top institutions. This early part of the book has interesting questions and observations such as "Ambition degradation" ie how ones ambitions degrade with time. an encouraging aspect of the book is how the author frankly discusses their own intellectual limitations despite being an incredibly smart high achiever which bodes well as an encouragement that failure isn't fatal. The key drag on the book is that some sections are fairly technical and those without intuitive understanding of bonds and options and equities might find it difficult to follow. A good read for many high achievers with big intellectual goals even outside of the field of finance
The book surpassed my expectations. It provides a detailed look into the life of physics PhDs and professors in late 70s and 80s. When the author switches jobs, to move to Goldman Sachs, we have the opportunity to understand how the quants, physicists and mathematicians, came to set the trend on Wall Street with the invention of new models for trading complex securities, such as options, swaps and other structured products.
For a niche market of readers this book is very nice. Not sure it would be as interesting for people who are not passionate about both physics and quant finance. Unfortunately the ending was a little anticlimactic.
O livro é uma biografia/memórias de um cientista que trocou o mundo acadêmico pelo mundo financeiro. Depois de seu doutorado em física de partículas na Universidade de Columbia (1973), depois de vários anos de pós-doutorado em diferentes lugares, e sem perspectivas de obter uma posição fixa em uma boa universidade, Emanuel Derman migrou para AT&T Bell Labs. Em 1985, passou a trabalhar com modelos financeiros em Wall Street, na Goldman, Sachs & Co. Derman foi muito bem sucedido, mas sua troca de carreira não foi exceção: diversos físicos estavam abandonando a academia nos anos 80, um fenômeno novo nos EUA da época. A expansão da verba pública destinada a pesquisa tinha acabado, e a academia não conseguia absorver o número de pesquisadores formados, mesmo os bem competentes, como era o caso do Derman (qualquer semelhança com o Brasil de hoje...). Em minha opinião, a visão do autor é bem equilibrada, sem elevar nem diminuir nenhum dos mundos. Como cientista, me identifiquei muito com a primeira parte do livro, em que o autor descreve sua vida como físico, seus pontos altos e baixos. A narrativa da saída do mundo acadêmico, e todas as dúvidas que o acompanharam, também é muito interessante. Além das recompensas financeiras, Derman conseguiu encontrar satisfação com sua vida em Wall Street, e por vezes os contrastes do mundo acadêmico/financeiro chegam a ser cômicos. Em alguns pontos, é difícil acompanhar o raciocínio devido a enxurrada de termos financeiros. Como tradicional em toda biografia, a parte final é arrastada. No geral, uma leitura divertida e que leva a algumas reflexões.
The author, Emanuel Derman, is a co-developer of the short rate model – Black-Derman-Toy model. He is also the director of Columbia’s Financial Engineering program. One special thing worth mentioning is that he switched his career from physics to finance at his 40’s.
I read this book with recommendation from a financial engineering program. It is said to be useful for me to understand and accelerate a career in quantitative finance.
The first half part of this book is about Emanuel’s life in physics, and it is not related to finance.
The second part is about his work and thoughts in wall street. The interesting part is that he had worked with many top quantitative finance researchers and practitioners, so the description of these talented guys (including author) is interesting for me to understand how they worked and thought on quantitative finance.
Courage to change:
Emanuel once had a dream to be a great physicist, and he spent more than ten years in the area. Unluckily, he never got a great achievement in physics according to his own standard and thus felt unhappy.
He changed his career to quantitative finance, and later became a top financial engineer in this area. Although Emanuel might not be a top physicist in the world, he later became a top quantitative researcher and practitioner thanks to his strong background in quantitative research.
More communication needed in finance area:
Emanuel described more co-work experience in quantitative finance than his previous work in physics. Communication with traders and researchers is important for him to develop financial models which are usable in real world. In physics, he did research mostly by himself.
Models are wrong:
Financial models are less stable than physics models. As Emanuel wrote, “In physics you’re playing against God, and He doesn’t change his laws very often. When you’ve checkmated Him, He’ll concede. In finance, you’re playing against God’s creatures, agents who value assets based on their ephemeral opinions.”
Take Black-Scholes model as example, it has assumptions including constant volatility and risk free rate, divisible asset, lognormal distribution of asset price, etc. The reality is that those assumptions are almost not true. What a practitioner can do is to develop or select a suitable model which can explain most of the price, interest rate or volatility movement under a specific situation. Thanks to this, quantitative analysists keep developing more suitable models and the quantitative financial models are evolving quickly nowadays.
I really enjoyed this book. It is the autobiography of a theoretical physicist who found his calling and life's work working on Wall St as a "quant,' or someone who uses advance mathematics to model financial systems. He is now working at a small hedge fund and teaching financial engineering at Columbia.
The first third or so of the book details his Ph.D. studies at Columbia and futile attempts to find secure employment as a theoretical physicist as he bumped from postdoc job to postdoc job. It paint a bleak view of the end of the glory days of theoretical physics and their inflated sense of their worth -- you were either Einstein or Feynman or you were shit. Naturally they look down on anyone in a less than purely theoretical science, even the phenomenologists who devise experiments that prove their theories are correct. Unfortunately, this attitude rubs off on Dr. Derman and limits the range of jobs that he considers acceptable.
The sad fact is that at the end of the 70s there were way more graduates in advanced physics than there were jobs. The strong encouragement of students to go into science in part because of the launch of Sputnik helped lead to this glut.
Like Dr. Derman, a lot of excess physicists wound up at Bell Labs, where Unix, C, and all kinds of useful tools were being developed. And a lot of these excess physicists also wound up on Wall Street, where quantitative finance was just taking off as a result of the insights brought about by Black, Scholes, and Merton's work on option pricing.
When Dr. Derman arrives at Goldman in 1985 the book becomes very interesting as he explains how he applied the models he learned for physics to financial problems, coming up with a way to model interest rates for pricing bond options within a few months of arriving. He also gets a necessary attitude adjustment in a Wall Street culture where a quant with a Ph.D. is only as useful as he is helpful to the trading desk.
There are some technical (and very interesting to me) discussions of exotic options and how to determine their volatilities and therefore their prices. It's interesting to read a book by someone who is clearly a fan of Unix, which he got to know in his Bell Labs days. And there is also a dry humor throughout the book, though I would guess that he didn't develop this sense of humor until his arrival on Wall St.
His description of the miseries of graduate school and postdoc work actually made me glad that I decided not to pursue that route shortly after arriving in California.
An interesting autobiography of Emanuel Derman describing his life in academia (PhD and couple of post-docs, particle physics) and as a quant on Wall-Street from early 80ies.
Both world are fascinating and Derman is an excellent observer.
Currently "celebrating" my first year out of academia a lot of his experiences really resonated with me (which is also telling - he did his postdocs in the 70ies, the situation hasn't changed much apparently).
The most interesting parts of the book for me were neither the particle physics or options theory, but Derman's observations on psychology and relationships in high achievement (and cognitive firepower) environments, coping with failure, family life and so on. It is a pity that these almost completely disappeared in the final 30-40% of the books which concentrated on technical details of his work on financial modelling.
An interesting look at financial engineering from a former theoretical physicist who has made a career on Wall street. Covers the increasing sophistication of Goldman Sachs and their competitors from the early 80s to around 2000, including some key models (in a very light and non-intimidating way.)
Worthwhile if you are interested in financial markets or differences between research and practical science.
well..only if one is super interests on understanding Black/Scholes Price Options Theory in steroid mode, then one may not find this book interesting at all..pretty much like Greg Smith of describing his life stories at school, after school, boring here, and there..then finally the hype to break through to understanding more in depth of Black/Scholes Theory during his second tenure at Goldman Sachs..
A honest book on the journey up to the point when he left Goldman for Columbia Business School. The author does not dress up the important decisions he made: going to graduate school, picking out a research topic in graduate school, experience in post doctoral positions, as an assistant professor, as a new parent, as a new hire at ATT lab, as a new hire at Goldman... It is a humble account, and I think helpful for the young.
The surprisingly well-written autobiography of a South African physicist ("doomed to be just very smart in a field dominated by geniuses") who goes into finance and eventually becomes MD and head of Goldman's highly-regarded quantitative strategies group. If you are, might be, or ever were interested in quantitative finance, a must-read. If you're not, probably boring.
A book that describes the career of one of the most successful "quants" on Wall Street. It provides great insight into the often difficult transitions from academia/pure research to the world of corporate America. The book also attempts to answer the questions, who is a quant and what does a quant do. A must read for anyone having an identity crisis regarding their "quant" job!
The first third, the story of his life as a grad student and post-doc, was highly amusing. Not so entertaining was his story of actually being a quant. Not knowing much about finance, I was pretty lost as he talked about the various models he worked on. Still, he had some good insight into how and when financial models are useful.
The author is bright and his career goes from PHD particle physicist to Bell Labs guy to Finance Engineer. Only the latter apparently makes him happy but he really yearns all the time to be back in physics. There's an undercurrent of an unhappy intellectual throughout the book. The latter part of the book is quite technical and only of interest to technical finance types.
Emmanuel Derman is wise and highly respected in the quant world. This biography is special in that he tells his life story, but also explains the models he worked on in simple, clear prose. For someone like me (a nerd) it's inspirational.
An interesting autobiography, from someone who jumped from theoretical physics to mathematical finance (or a leap from science to the "art" of financial modeling). Having worked with the godfather of the subject (F.Black), he knows first hand what he's talking about. At times it drags a bit.
For a certain audience this is perfect. If you did physics grad school and are interested in finance (as a hobby or a career), this is highly recommended. Otherwise, either one (physics grad school/postdoc life) or the other (finance, options, derivatives) may be too deep for your taste.
Derman is smart and apparently confident in himself. The complex technical details are well written to give me a rough idea. Nonetheless I feel that the book is inadequate. Maybe I ask for too much or maybe I know too little to begin with.
Ambition is a state of permanent dissatisfaction with the present.
The recipient of the first PhD degree ever awarded by the department, at the start of the century, had been R. A. Millikan. Later he received the Nobel Prize for his precise measurements of the invisible electron’s charge by ingeniously measuring the deflection of tiny oil drops carrying an unseen electron or two’s worth of static electricity.
Newton’s Law of Gravitation, his three Laws of Motion, and his differential calculus described with apparent perfection the mechanical motion of objects in our world and the solar system. In 1864, two hundred years after Newton, the Scottish physicist James Clerk Maxwell formulated the compact and elegant differential equations that described with similarly astounding precision the propagation of light, X-rays, and radio waves.
What is the purpose behind the search for scientific laws, in any field? Clearly, it’s divination—foretelling the future, and controlling it.
The Black-Scholes model allows us to determine the fair value of a stock option. If you own a one-year call option on IBM, for example, you have the right to buy one share of IBM one year from today at a predetermined price: say, $100.The value of the option on that future date when it expires will depend on the prevailing value of a share of IBM. If, for example, a share sells for $105 on that day, the option will be worth exactly $5; if a share sells for less than $100, the option will be worth nothing. In a sense, the option is a bet that the stock price will rise.
An option is a special case of a more general derivative security,a contract whose value is derived from the value of some other simpler underlying security on which it “rests.”
How, then, do dealers handle the risk they are forced to assume? Dealers are analogous to insurance companies, who are also in the business of managing risk.
In an ideal world, he or she would simply offset the risk that IBM’s price will rise by buying an IBM option similar to the one he or she sold, from someone else and at a cheaper price, thereby making a profit. Unfortunately, this is rarely possible. So instead, the dealer manufactures a similar option.This is where the Black-Scholes model enters the picture.
financial theory, mathematics, and computing, and quants work at the intersection of these three disciplines.
I didn’t fully realize that the word quant had negative overtones until I leafed through a dictionary of finance terms several years ago and saw the entry “quant—often pejorative.”
Tour de France cyclists don’t need to know how to solve Newton’s Laws in order to bank around a curve.
I remember one note that tried to deduce the existence of God from the approximate equality of the solid angles subtended by the sun and the moon when observed from the earth, a remarkable circumstance without which there would be no solar eclipses.
I took four separate year-long courses in Physics, Pure Maths, Applied Maths, and Chemistry
Richard P. Feynman once said that doing elementary particle physics is a lot like banging two fine Swiss watches against each other and trying to figure out their workings by examining the debris.
smart-aleck American undergraduates. they all raised their hands in class to ask questions whose answers they already knew.
Like most physicists, I was a reductionist: I believed that you can explain complex things by reducing them to their constituents.
The university just kept funneling you a small but livable stipend and hoped you stayed out of their way.
Gravity, the oldest and most familiar force, governs the motions of falling apples, the earth and the moon, the planets, stars, and galaxies.