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8 Research Articles

A Few Notes from My Life as a Quant, Reflections on Physics and Finance

In his 2004 autobiography, My Life as a Quant, Reflections on Physics and Finance, Emanuel Derman recounts his experiences as a physicist driven by the forces of employment supply and demand to redirect his labor toward quantitative financial analysis/strategy. Knowledge and skills critical to his transition are: a sense of how the world works, modeling… Keep Reading

Human Passions and Asset Volatility

How should investors think about, and perhaps exploit, asset return volatility? In his December 2022 paper entitled “A Stylized History of Volatility”, Emanuel Derman reviews how generations of financial modelers have quantified volatility and ultimately created tradable volatility-based assets. He also discusses some general modeling considerations. Based on the body of research and his experience,… Keep Reading

Classic Essay: The Foolish, the Theoretical and the Practical

How can investors and speculators tell foolish, theoretical and practical investing/trading schemes apart? In his August 2002 paper entitled “Cranks, Academics and Practitioners”, former head of quantitative strategies at Goldman Sachs Emanuel Derman briefly circumscribes this question. He notes that: “…[A]s I skimmed through the crank file I found it hard to feel superior. Instead,… Keep Reading

Quantitative Finance in a Nutshell

Just what does it mean to be a quant? In his December 2002 article entitled “The Boy’s Guide to Pricing & Hedging “, Emanuel Derman offers an “abbreviated poor man’s guide” to quantitative finance. He observes that:

Models in Finance

How strongly should investors believe in models of financial markets and asset prices? In his contemplative November 2010 paper entitled “Metaphors, Models & Theories”, Emanuel Derman reflects on the tractability of finance in general and the degree to which financial models are useful. Largely by comparison to theorizing and modeling in physics, he observes that:

A Few Notes on The Physics of Wall Street

James Weatherall, physicist, mathematician and philosopher, introduces his 2012 book, The Physics of Wall Street: A Brief History of Predicting the Unpredictable, by stating: “This book tells the story of physicists in finance. …It is about how the quants came to be, and about how to understand the ‘complex mathematical models’ that have become central to modern finance.”… Keep Reading

Option Valuation

How do market makers and sophisticated investors/traders determine option value? In his July 2019 essay entitled “Trading Volatility”, Emanuel Derman outlines the history and shortcomings of option valuation as described by the Black-Scholes model, which estimates the value of an option on an asset as a function of the asset’s price and volatility. He also… Keep Reading

A Few Notes on The Uncertainty Solution

In his 2023 book, The Uncertainty Solution: How to Invest with Confidence in the Face of the Unknown, author John Jennings seeks “to provide individual investors with mental models that will help them make better investment decisions, practice better investment behavior, and be better consumers of investment advice… This book is not about how to… Keep Reading