My Life as a Quant: Reflections on Physics and Finance
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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 models–have 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.
Prologue : the two cultures1Ch. 1Elective affinities17Ch. 2Dog years29Ch. 3A sort of life53Ch. 4A sentimental education65Ch. 5The mandarins77Ch. 6Knowledge of the higher worlds85Ch. 7In the penal colony95Ch. 8Stop-time117Ch. 9Transformer129Ch. 10Easy travel to other planets143Ch. 11Force of circumstance175Ch. 12A severed head191Ch. 13Civilization and its discontents203Ch. 14Laughter in the dark225Ch. 15The snows of yesteryear251Ch. 16The great pretender265
