My Life As a Quant - Reflections On Physics and Finance

The book starts with a history of physics that is reminiscent of "The Elegant Universe" by Brian Greene. From Newton to Maxwell to Einstein and beyond, Derman discovers the great theories of yesterday and finds himself in the middle of a seven year marathon to a PhD and the launch of his academic career.

The struggle for intellectual purity and the distain for applied work abound in Derman's academic environment and the pressures of achieving greatness are pronounced in a place where genius is a commodity.

In a leap of faith, Derman decides to return to New York to spend more time with his family and to surrender to what he considered a less dignified job.

Lost in the Dilbert-esque hierarchies of the Bell Labs, Derman discovers the joy of programming, while submerged in office politics. After numerous attempts of beating the currents, Derman finally reaches the shores of Wall Street and is relieved to find an avant-garde environment, where meritocracy is no longer a foreign word.

The initial period of awakening takes place at Goldman Sachs, where he is mentored by Fischer Black, one of the great financial practitioners of our time. Derman is immediately impressed by Black's pragmatic style and intuitive quest for simplicity.

Black's influence becomes evident in the lucid and accessible description of the famous Black-Derman-Toy interest rate model and the subsequent elaborations on local volatility models that are at the foundation of more exotic instruments (which cannot be accurately priced using the overly simplistic implied volatility provided by the Black-Scholes-Merton model).

The author discusses the process of deriving original models and emphasizes that the elegant stochastic calculus derivations of these models are deceptively simple and make it difficult for students to fully appreciate the amount of effort that went into developing the initial embodiments -- what seems obvious now was once heavily debated.

Armed with the recently acquired knowledge, Derman accepts a new challenge at Salomon Brothers, doubling his compensation in the process. Unfortunately, the unhealthy competitiveness at Salomon forces him to reconsider quickly and he returns to Goldman after an undeserved layoff. The roundtrip allows Derman to develop an appreciation for the collaborative environment at Goldman.

Throughout the book, the interactions with family members, professors, bosses, traders, programmers and sales people are both amusing and enlightening. Derman succeeds in blending physics, finance, and human emotion in this masterful and entertaining autobiography.