As part of my summer reading list, I have recently finished Emanuel Derman’s “My Life As A Quant”, which is a biography of his transition from the field of theoretical particle physics to high finance on Wall St. Derman’s book is enjoyable for its realism in depicting the “elite” world of particle physics and quantitative finance.
Unlike more academic books on finance, Derman’s approach to explaining models he worked such as “jump diffusion” or “implied volatility trees” allows easy following and thorough of the reasons behind the incorporation of such features into then existing models in quantitative finance. He really takes his time to break down the mathematical formalities which sometimes limit the audience of academic papers. In this respect, his tenure on Wall St has allowed him to become the medium through which highly theoretical ideas can be conveyed and realized in the real world.
I find this pragmatic approach very admirable, as what is the use highly theoretical works which can only be understood by a few dozen individuals in the world? What appreciable change does such an esoteric work bring to the world? This is a question which Derman poses and answers well with this intuitive explanations of otherwise complex and esoteric subjects. Moreover, his final points on the differences between models in physics and finance have strong resonance with someone like myself whom has been fascinated with the modelling of human behavior.
Unlike physics, models pertaining to human interaction cannot be absolute but rather an estimate. To rely blindly models is indeed a flaw, although I am not prepared to jump ship on yet on the belief of an elegant unified theory of markets in finance.
Henry Wang 