Emanuel Derman > Quotes

“If you decide you don’t have to get A’s, you can learn an enormous amount in college.”
― Emanuel Derman, My Life as a Quant: Reflections on Physics and Finance

“Once, sitting in my car in the parking lot outside Building 5 during a prolonged downpour after a long lunch off premises, Mark, Larry, and I pondered the famous two-condom combinatorial problem that spread through the Center: Two (heterosexual) couples decide to have group sex with each other in all possible male-female combinations. They have only two condoms, and everyone is scared of catching some venereal disease. How can they manage four couplings with only two condoms? The first man puts on two condoms, one over the other, and then sleeps with the first woman. Only the outer surface of the outer condom and the inner surface of the inner one has had contact with any potentially infectious surface. The man removes the outer condom and sleeps with the second woman. The second man then dons the removed outer condom whose inner surface has until now had no contact with anyone’s skin, and sleeps with the first woman, whose only contact has thus far been with the outside of the same condom. Finally, the second man dons the second condom over the one he is already wearing, and sleeps with the second woman, who again only experiences a condom she has already touched. It was impossible to resist the temptation to generalize to N couples.”
― Emanuel Derman, My Life as a Quant: Reflections on Physics and Finance

“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.”
― Emanuel Derman, Models.Behaving.Badly: Why Confusing Illusion with Reality Can Lead to Disaster, on Wall Street and in Life

“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.”
― Emanuel Derman, My Life As A Quant: Reflections On Physics And Finance

“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.”
― Emanuel Derman, My Life as a Quant: Reflections on Physics and Finance

“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.”
― Emanuel Derman, The Volatility Smile: An Introduction for Students and Practitioners

“I wanted to be Feinberg's student, but I didn't know how to go about it. Since it was premature for formal arrangements and since I was naturally reticent and shy, I simply began to greet him very politely whenever our paths crossed. Graduate school was a small community. In corridors and elevators and on campus, I was soon running into Feinberg several times a day, always giving him a polite hello and a nice smile. He would reciprocate similarly with a sort of nervous curling of the lips. As time passed, this limbo of flirtatious foreplay continued unabated. I could never find the courage to broach the question of being his student; I supposed I must have hoped it would just happen wordlessly. Every time I saw him I smiled; every time I smiled he bared his lips back at me with greater awkwardness. Our facial manipulations bore increasingly less resemblance to anything like a real smile; each of our reciprocated gestures was a caricature, a Greek theatrical mask signaling friendliness. One day, on about the fifth intersection of our paths on that particular day, I could stand it no longer. I saw him heading towards me down one of the long dark, old-fashioned Pupin corridors, and immediately turned towards the nearest stairwell and went up one floor to avoid him. Having succeeded at this once, I was compelled to do it repeatedly. Soon I was moving upstairs or downstairs to another floor as soon as I saw him approaching, like the protagonist in some ghastly version of the video game Lode Runner.”
― Emanuel Derman, My Life As A Quant: Reflections On Physics And Finance

“in this job you really need to know only four things: addition, subtraction, multiplication, and division—and most of the time you can get by without division!” I”
― Emanuel Derman, My Life as a Quant: Reflections on Physics and Finance

“I once heard [Gerald] Feinberg suggest that many of Manhattan's 1970s social problems could be solved by forbidding anyone who earned less than, say, $10,000 per year to live there. It had not occurred to him, apparently, that this excluded many of the people who worked at the university.”
― Emanuel Derman, My Life As A Quant: Reflections On Physics And Finance

“I don’t judge him now. Like most of us, he wasn’t what he thought he was. But thankfully, for most of us, comprehension of the disparity between who we think we are and who we truly are comes gradually and with age. We are lucky to avoid a sudden tear in our self-image and suffer more easily its slow degradation. For Leftwich the apparent union between personality and character ruptured like the fuselage of the early De Havilland Comet, in an instant, in midair, unable to withstand the mismatch between external and internal pressure. How do you ever forgive yourself for a betrayal like that? But we have all committed acts that surprise us and are hard to forgive. You can count yourself lucky if your model of yourself survives its collision with time.”
― Emanuel Derman, Models.Behaving.Badly: Why Confusing Illusion with Reality Can Lead to Disaster, on Wall Street and in Life

“The best quantitative finance brings real insight into the relation between value and uncertainty, and it approaches the quality of real science; the worst is a pseudoscientific hodgepodge of complex mathematics used with obscure justification.”
― Emanuel Derman, My Life as a Quant: Reflections on Physics and Finance

“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”
― Emanuel Derman, My Life as a Quant: Reflections on Physics and Finance

“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”
― Emanuel Derman, My Life as a Quant: Reflections on Physics and Finance

“A good quant must be a mixture, too—part trader, part salesperson, part programmer, and part mathematician.”
― Emanuel Derman, My Life as a Quant: Reflections on Physics and Finance

“Ten years later, as a postdoctoral researcher at Oxford in 1976, I experienced a minor epiphany about ambition’s degradation. At age 16 or 17, I had wanted to be another Einstein; at 21, I would have been happy to be another Feynman; at 24, a future T. D. Lee would have sufficed. By 1976, sharing an office with other postdoctoral researchers at Oxford, I realized that I had reached the point where I merely envied the postdoc in the office next door because he had been invited to give a seminar in France. In much the same way, by a process options theorists call time decay, financial stock options lose their potential as they approach their own expiration.”
― Emanuel Derman, My Life As A Quant: Reflections On Physics And Finance

“In life there isn’t always such an easy resolution. One has to treat people as responsible for their actions, and yet also recognize that they can’t help what they do. It’s always easier to regard others from the outside. But one can also try to imagine them as they experience themselves, as we all do, from the inside. Then it becomes possible to see that we all deserve mercy.”
― Emanuel Derman, Models.Behaving.Badly: Why Confusing Illusion with Reality Can Lead to Disaster, on Wall Street and in Life

“Treasury Bills The simplest, safest way to generate future cash from current cash is to buy a short-term, three-month Treasury bill. The purchase price you pay is loaned to the government, which in return promises to pay you a guaranteed rate of interest for three months and then return your principal. Because it is very unlikely that the U.S. Treasury will not be around to repay you three months later, the investment is close to riskless and therefore pays a low rate of interest. Its return serves as a benchmark for riskier securities, which must promise to pay more.”
― Emanuel Derman, Models.Behaving.Badly.: Why Confusing Illusion with Reality Can Lead to Disaster, on Wall Street and in Life

“Even in the mid-1990s geeks were fair game. One afternoon a colleague and I were standing on either side of one of the narrow aisles between the banks of trading desks on the floor when one of the chief traders walked between us, his head momentarily between ours. At that instant he winced, clutched his head with both hands as though in excruciating pain, and exclaimed, “Aarrggh-hhh! The force field! It’s too intense! Let me out of the way!”
― Emanuel Derman, My Life As A Quant: Reflections On Physics And Finance