Emanuel Derman Quotes

Cruelty links all three primitives [pleasure, pain, and desire]: Spinoza defines it as the desire to inflict pain on someone we love or pity. Financial speaking, cruelty is analogous to a convertible bond whose debt and equity depend on three economic underliers: the stock price, the level of interest rates, and the credit worthiness of the company's debt.

At Columbia and far beyond, T.D. was renowned and celebrated. At the weekly research seminars I attended ... every speaker felt compelled to focus on him; as they spoke, their eyes fixated only on him, and he let no statement he did not fully agree with pass hi by. No matter who lectured at the seminar, T.D. concentrated intensely on their argument, and interrupted at the first instant something was not satisfactory. At times he broke in on the initial sentence of the talk, refusing to let a speaker proceed until the point was clarified. Sometimes clarification never came; I once witnessed the humiliation of a visiting postdoc who was forced to defend the first sentence he uttered for the entire hour and a half allowed for his seminar. No one dared restrain T.D.

crashes are not randomly occurring lightning bolts; they are the consequence of the madness of crowds who are busy avoiding the last mania as they participate in what will turn out to be the current one.

Finance is concerned with the relations between the values of securities and their risk, and with the behavior of those values. It aspires to be a practical, like physics or chemistry or electrical engineering. As John Maynard Keynes once remarked about economics, "If economists could manage to get themselves thought of as humble, competent people on a level with dentists, that would be splendid." Dentists rely on science, engineering, empirical knowledge, and heuristics, and there are no theorems in dentistry. Similarly, one would hope that nance would be concerned with laws rather than theorems, with behavior rather than assumptions. One doesn't seriously describe the behavior of a market with theorems.

Fair value and change are therefore two sides of the same coin; the more ways in which a security can lose value from a future market move, the less it should rationally be worth today, and hence the mantra: more risk, more return. This difference between the quant's view of value as an average versus the trader's need to worry about any change makes this kind of professional cross-communication difficult. Tour

Traders and quants are genuinely different species. Traders pride themselves on being tough and forthright while quants are more circumspect and reticent. These differences in personality are reflections of deeper cultural preferences. Traders are paid to act. All day long they watch screens, assimilate economic information, page frantically through spreadsheets, run programs written by quants, enter trades, talk to salespeople and brokers, and punch keys. It's hard to have an extended conversation with a trader during the business day; it takes an hour of standing around to have five minutes of punctuated repartee. Part of what traders do has a video game quality. In consequence, they learn to be opinionated, visceral, fast-thinking, and decisive, though not always right. They thrive on interruption. Quants