Sunday, May 03, 2009

Review: My Life as a Quant

My Life as a Quant (kindle edition) is Emanuel Derman's memoir of his journey from being an ambitious Physicist to being a much lauded financial engineer.

The first half of his book covers his training and education as a physicist. There's not a little bit of the usual physicist's arrogance built into his training. There's the note that in Physics, you frequently run into people so smart that you know you'll never be at that level, and the widely accepted opinion that Physics is so much better than other fields that a poorly paying post-Doc as a physicist is better than almost any other profession. From being a professor at the University of Colorado to finally ending up at Bell Labs where he was essentially trained as one of the early C programmers, Derman's gradual disillusionment with Physics and his lack of material progress in that field shows through.

The second half of the book is much more exciting. It's provides a good layman's introduction to financial engineering (that Derman's currently a professor of financial engineering shows through), as well as Derman's life in Goldman Sachs and Saloman Brothers, firms which were central in the financial collapse last year. Now that he's a successful theorist in financial engineering, Derman's a lot more humble --- he ends with a long treatise on the limits of financial engineering, and emphasizes that ultimately, it's the trader's human intuition that makes the final decision, and that no model in finance can give you the same exactness as the ones in Physics --- in one you're playing a game where the rules do not change, and in the other you play against humans, who learn and always find new exploits.

The book was worth my time, but I wonder what he would say now, given the events in 2008.
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