Электронная книга: Emanuel Derman «Models. Behaving. Badly. Why Confusing Illusion with Reality Can Lead to Disaster, on Wall Street and in Life»

Models. Behaving. Badly. Why Confusing Illusion with Reality Can Lead to Disaster, on Wall Street and in Life

Emanuel Derman was a quantitative analyst (Quant) at Goldman Sachs, one of the financial engineers whose mathematical models became crucial for Wall Street. The reliance investors put on such quantitative analysis was catastrophic for the economy, setting off the ongoing string of financial crises that began with the mortgage market in 2007 and continues through today. Here Derman looks at why people– bankers in particular – still put so much faith in these models, and why it's a terrible mistake to do so. Though financial models imitate the style of physics and employ the language of mathematics, ultimately they deal with human beings. There is a fundamental difference between the aims and potential achievements of physics and those of finance. In physics, theories aim for a description of reality; in finance, at best, models can shoot only for a simplistic and very limited approximation to it. When we make a model involving human beings, we are trying to force the ugly stepsister's foot into Cinderella's pretty glass slipper. It doesn't fit without cutting off some of the essential parts. Physicists and economists have been too enthusiastic to acknowledge the limits of their equations in the sphere of human behavior–which of course is what economics is all about. Models.Behaving.Badly includes a personal account of Derman's childhood encounters with failed models–the oppressions of apartheid and the utopia of the kibbutz. He describes his experience as a physicist on Wall Street, the models quants generated, the benefits they brought and the problems, practical and ethical, they caused. Derman takes a close look at what a model is, and then highlights thedifferences between the successes of modeling in physics and its failures in economics. Describing the collapse of the subprime mortgage CDO market in 2007, Derman urges us to stop the naïve reliance on these models, and offers suggestions for mending them. This is a fascinating, lyrical, and veryhuman look behind the curtain at the intersection between mathematics and human nature.

Издательство: "John Wiley&Sons Limited"

ISBN: 9781119944683

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Emanuel Derman

Emanuel Derman
Born Cape Town, South Africa
Residence New York City, New York, United States
Citizenship United States
Fields particle physics, financial engineering
Institutions Goldman Sachs
Salomon Brothers
Columbia University
Alma mater Columbia University
University of Cape Town
Doctoral advisor Norman Christ
Known for Financial Modelers' Manifesto
Black-Derman-Toy model
Local volatility
Derman-Kani Model
Notable awards 2000 Financial Engineer of the Year

Emanuel Derman is a South African-born academic,[1] businessman and writer. He is best known as a quantitative analyst, and author of the book My Life as A Quant: Reflections on Physics and Finance.[2]

He is a co-author of Black-Derman-Toy model, one of the first interest-rate models, and the Derman-Kani local volatility or implied tree model, a model consistent with the volatility smile.

He is currently a professor at Columbia University[3] and Director of its program in financial engineering, and is also the Head of Risk and a partner at Prisma Capital Partners, a fund of funds. His book My Life as A Quant: Reflections on Physics and Finance, published by Wiley in September 2004, was one of Business Week's top ten books of the year for 2004.[4] His forthcoming book Models.Behaving.Badly, will be published by Free Press in October 2011.



Derman studied at the University of Cape Town,[5] and received a Ph.D. in theoretical physics from Columbia in 1973, where he wrote a thesis that proposed a test for a weak-neutral current in electron-hadron scattering. This experiment was carried out at SLAC in 1978 by a team led by Charles Prescott and Richard Taylor, and confirmed the Weinberg-Salam model. Between 1973 and 1980 he did research in theoretical particle physics at the University of Pennsylvania, the University of Oxford, Rockefeller University and the University of Colorado at Boulder. From 1980 to 1985 he worked at AT&T Bell Laboratories, where he developed computer languages for business modeling applications.

In 1985 Derman joined Goldman Sachs' fixed income division where he was one of the co-developers of the Black-Derman-Toy interest-rate model.

He left Goldman Sachs at the end of 1988[6] to take a position at Salomon Brothers Inc. as a Head of Adjustable Rate Mortgage Research in the Bond Portfolio Analysis group.

Rehired by Goldman Sachs, from 1990 to 2000 he led the Quantitative Strategies group in the Equities division, which pioneered the study of local volatility models and the volatility smile. He was appointed a managing director of Goldman Sachs in 1997. In 2000 he became head of the firm’s Quantitative Risk Strategies group. He retired from Goldman Sachs in 2002 and took up his current positions at Columbia University and Prisma Capital Partners.

Derman was named the IAFE/Sungard Financial Engineer of the Year 2000,[7] and was elected to the Risk Hall of Fame in 2002.[8] He is the author of numerous articles on quantitative finance on the topics of volatility and the nature of financial modeling.[9]

Since 1995, Derman has written many articles pointing out the essential difference between models in physics and models in finance. Good models in physics aim to predict the future accurately from the present, or to predict new previously unobserved phenomena; models in finance are used mostly to estimate the values of illiquid securities from liquid ones. Models in physics deal with objective variables; models in finance deal with subjective ones. “In physics there may one day be a Theory of Everything; in finance and the social sciences, you’re lucky if there is a usable theory of anything.”

Professor Derman together with Paul Wilmott wrote the Financial Modelers' Manifesto, a set of principles for doing responsible financial modeling.[10]


In 2011, Prof. Derman published a new book titled Models.Behaving.Badly: Why Confusing Illusion With Reality Can Lead to Disaster, on Wall Street and in Life. In that work he decries the breakdown of capitalism as a model during the bailouts characterizing the 2008 financial crisis and calls for a return to principles, to the notion that if you want to take a chance on the upside, you have also taken a chance on the downside. More generally, he analyzes three ways of understanding the behavior of the world: models, theory and intuition. Models. he argues, are merely metaphors that compare something you would like to understand with something you already do. Models provide relative knowledge. Theories, in contrast, are attempts to understand the world on absolute terms; while models stand on someone else's legs, theories, like Newton's or Maxwell's or Spinoza's, stand on their own. Intuition, the deepest kind of knowledge, comes only occasionally, after long and hard work, and is a merging of the understander with the understood. His book elaborates on these ideas with examples from the theories of physics and philosophy, and the models of finance.

See also


External links

Источник: Emanuel Derman

См. также в других словарях:

  • Emanuel Derman — Born Cape Town, South Africa Residence New York City, New York, United States …   Wikipedia

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