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Book Review: My Life as a Quant: Reflections on Physics and Finance

December 11, 2011 2 comments

Written by Emanuel Derman – physicist and ex-Goldman quant – the book combines my love for physics and finance and is one of the best books I’ve read in a long time. The first half of the book covers his life as a physicist at Columbia, Oxford, and Bell Labs. He talks about various luminaries and Nobel Prize winners he worked with or came across during his first reincarnation as a physicist. The book is excellent for those interested in physics and in search of the ultimate ‘truth’.

Emanuel Derman was head of Quantitative Strategies at Goldman and also spent time at the now infamous Salomon Brothers. He describes his work with Fisher Black (yup, THE Fisher Black of the Black-Scholes model) at Goldman and the famed John Meriwether’s bond arb group at Salomon.

The first half of the book is physics heavy whilst the second half focuses on one of the most interesting times in finance, where academics emigrated into Wall Street as quants in the 80s. As an armchair physicist, and currently working in finance, I thoroughly enjoyed this book.

I particularly like the part where he wrote:

“I began to believe it was possible to apply the methods of physics successfully to economics and finance, perhaps even to build a grand unified theory of securities.

After twenty years on Wall Street I’m a disbeliever. The similarity of physics and finance lies more in their syntax than their semantics. In physics you’re playing against God, and He doesn’t change His laws very often. In finance you’re playing against God’s creatures, agents who value assets based on their ephemeral opinions. The truth therefore is that there is no grand unified theory of everything in finance. There are only models of specific things.”

Perhaps he is my role model – finance is means to an end, not the end.

Derman is currently Professor at Columbia University and Director of its Financial Engineering Program

 

 

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