My Life as a Quant: Reflections on Physics and Finance

Dr. Emanuel Derman will discuss his book My Life as a Quant: Reflections on Physics and Finance (John Wiley & Sons). 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, including the widely used Black-Derman-Toy model of interest rates.

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?