YouSaid · the spoken record

Emanuel Derman

lines on the record: 127
first: 2016-02-26
most recent: 2016-02-26
sittings or episodes: 1
sources: podcast

Every line below is reproduced as it was said and linked to the record it came from. Nothing here is summarised or generated. Directory · Search · Corrections

“These people proper respect. Well, they gave them respect and they paid them kind of decently, but there was still, at least in the area I worked in at that point, there was still a very finite gap between being a trader and being a quant. Now I think that's vanished a lot. But then you were a support person, you weren't a position taker.”
2016-02-26 · Masters in Business · Interview With Emanuel Derman: Masters in Business (Audio) · IDENTIFIED FROM THE TRANSCRIPT · source
“You know, I think things were steadily improving for Quant, although at the same time Goldman was getting much more bureaucratic. But by that time, you'd been through long-term capital, you'd been through DSHAR, so LTCM, so all sorts of hedge funds starting to make a lot of money out of supposedly quantitative strategies, and particularly the whole internet, not bubble, but the whole internet excitement where suddenly... Being technologically competent became a way to make money. And even destroying the whole system like LTCM gave you respect. So things were getting better for Quants.”
2016-02-26 · Masters in Business · Interview With Emanuel Derman: Masters in Business (Audio) · IDENTIFIED FROM THE TRANSCRIPT · source
“Early 90s, people didn't want to put email addresses or PhD degrees on their business card. Now, of course, they'd love to do it”
2016-02-26 · Masters in Business · Interview With Emanuel Derman: Masters in Business (Audio) · IDENTIFIED FROM THE TRANSCRIPT · source
“He was a geek like me, but he didn't like me talking about it in public. But then even in the early 90s, I remember when... Not just quants, but everybody, if you had a PhD, you didn't put it on your business card. And if you had an email address, you didn't put it on your business card because that was like the brand of Kane, you know?”
2016-02-26 · Masters in Business · Interview With Emanuel Derman: Masters in Business (Audio) · IDENTIFIED FROM THE TRANSCRIPT · source
“Is that how they looked at? Actual vibe there? Yeah, when I got there in 85, which was earlier, people would get in the elevator and sort of make jokes and say, oh, all of you allowed to travel in the same elevator at the same time. Or I would be with, I wrote about it in my life as a quanta. I would be with some guy and I was very excited about being on Wall Street and it was interesting. I would say something to him about duration or convexity and he would get embarrassed and shrink away and say, what do you think of the Yankees last night?”
2016-02-26 · Masters in Business · Interview With Emanuel Derman: Masters in Business (Audio) · IDENTIFIED FROM THE TRANSCRIPT · source
“That's funny. It varied. For a while, I worked for Fisher Black in his group, and then he had everybody sit on the desk and get lunch when the traders got lunch. And you were kind of more equal. But generally, I would say... Didn't last long, and people treated you like geeks, but like useful people that they spoke to you.”
2016-02-26 · Masters in Business · Interview With Emanuel Derman: Masters in Business (Audio) · IDENTIFIED FROM THE TRANSCRIPT · source
“People laughed at you, although they kind of treated you with respect. I liked it, but it was a kind of mocking kind of respect.”
2016-02-26 · Masters in Business · Interview With Emanuel Derman: Masters in Business (Audio) · IDENTIFIED FROM THE TRANSCRIPT · source
“You see that it was a great movie? Absolutely. Yeah, for kids and parents to see simultaneously. And I was thinking of my life as a dog, that was really in the back of my mind. When I came to Goldman Quant was a sort of like being a geek or being...”
2016-02-26 · Masters in Business · Interview With Emanuel Derman: Masters in Business (Audio) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, I think it is actually. I mean, when I started out, very few traders were very numerous. They didn't know a lot of math. They hadn't studied. A lot of them came from law backgrounds or stuff like that. And now, in fact, Quant was a derogatory word. I've got a dictionary from the late 90s where somebody, it's by Mark Kritzmann called a dictionary of financial terms and he says quant. And he says. Quantitative analysts often use pejoratively. And when I wrote that book called My Life as a Qant, what was actually in the back of my head was I took my kids 25 years ago to see a Swedish movie called My Life as a Dog.”
2016-02-26 · Masters in Business · Interview With Emanuel Derman: Masters in Business (Audio) · IDENTIFIED FROM THE TRANSCRIPT · source
“There was a funny cartoon. This was a little maybe not right, but there was a funny cartoon by Barry Blitzer or Barry Blitz. I forget his name. It was in New York. A New Yorker cartoonist who had a picture somewhere in 2008 of Obama dressed as a New York City policeman with a hat and a Navy uniform and walking down the street, twirling a baton with his eyes cast up at heaven as though he couldn't see what was around him. And meanwhile, people behind him were running with bags of money into buildings Sort of typified it for me.”
2016-02-26 · Masters in Business · Interview With Emanuel Derman: Masters in Business (Audio) · IDENTIFIED FROM THE TRANSCRIPT · source
“I think it's a better ethical way to do it. I have friends who argue with this about, and they say the whole system would have collapsed if we hadn't bailed them out. People are now at the Fed who say everything was, you know, credit was on the verge of sort of freezing up. But I think it's left a permanent bad taste in everybody's mouth.”
2016-02-26 · Masters in Business · Interview With Emanuel Derman: Masters in Business (Audio) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yes, and I like to think that what a lot of the banks should have done if they were saved by the government was they were essentially given a put, if you look at it from an options point of view. They were saved from death. They were given a put, they should have given away a call to the.”
2016-02-26 · Masters in Business · Interview With Emanuel Derman: Masters in Business (Audio) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, and saying, Oh, the whole system will die if you don't save us. And that's what I meant. If you want to be somebody that benefits from taking risks, you also have to benefit when taking risk kills you.”
2016-02-26 · Masters in Business · Interview With Emanuel Derman: Masters in Business (Audio) · IDENTIFIED FROM THE TRANSCRIPT · source
“What I mean by that, there was a response to, I think you wrote a book about this too, to the bailouts of 2007-89. Right. When I felt that there were a lot of companies around banks in particular, but financial companies that were taking risks and saying that's the essence of capitalism and sort of leave me alone and let me do what I'm good at. And then suddenly when everything collapsed, they wanted to be saved from death. And I found... I don't know whether ethically or morally disturbing, hypocritical.”
2016-02-26 · Masters in Business · Interview With Emanuel Derman: Masters in Business (Audio) · IDENTIFIED FROM THE TRANSCRIPT · source
“But yeah, they do. And, you know, Bachelet, the guy who started a lot of this stuff, and Paul Samuelson, they all had a physics math background somewhere in there.”
2016-02-26 · Masters in Business · Interview With Emanuel Derman: Masters in Business (Audio) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, I don't know who originally coined that. I think maybe Andy Lowe, who's a professor at MIT. I think that's accurate. I think maybe it's fading to some extent. Now, the behavioral finance people clearly don't.”
2016-02-26 · Masters in Business · Interview With Emanuel Derman: Masters in Business (Audio) · IDENTIFIED FROM THE TRANSCRIPT · source
“May not be perfect, but it's very accurate. On the other hand, they might say a nucleus at the center of an atom is like a liquid drop. And they understand that when they say a nucleus is like a liquid drop, it isn't really a liquid drop. It's just a lot like it, but at some point that analogy is going to break down. And people get Nobel Prizes for saying a nucleus is like a liquid drop. They get Nobel Prizes for doing what Feynman did, which is an accurate description of electrons. But physicists understand that one of them is truth or close to truth and the other one's just a model.”
2016-02-26 · Masters in Business · Interview With Emanuel Derman: Masters in Business (Audio) · IDENTIFIED FROM THE TRANSCRIPT · source
“Because we can't do better. And the difference is, I think economists don't understand. I like to not be too rude about economists, but they don't understand the difference between a model and a theory or a metaphor and an accurate description. And physicists, which is my original background, actually understand that very well. So for example, if you say Newton's laws which describe the planets going around the sun, they say force equals mass times acceleration, that's really accurate.”
2016-02-26 · Masters in Business · Interview With Emanuel Derman: Masters in Business (Audio) · IDENTIFIED FROM THE TRANSCRIPT · source
“Exactly. And for example, in physics, that's called Brownian motion, this motion of diffusion. In physics, that really is a theory. It's an accurate description of the way smoke behaves. But stock prices don't behave that way. Volatility jumps, stock prices crash, Apple rises or jumps by 20 or 30 bucks in a day more actually, sometimes 10% in a day. So it's not a diffusion. It's something that's violent.”
2016-02-26 · Masters in Business · Interview With Emanuel Derman: Masters in Business (Audio) · IDENTIFIED FROM THE TRANSCRIPT · source
“So, Yes, and if you can get eight hours a night's sleep. But if you think about what he's doing, he's sort of, there's a small overlap between sleep and between paying interest on a bond, which is that you sleep regularly and you pay interest on a bond regularly. That's really the only analogy. But on a bond, you've borrowed money and you have to pay it back at the end. And now he's saying you've borrowed your life from the darkness. And at the end, you have to pay it back again and you're paying back darkness all the way. So I think that's a good example. Most of the models in finance are analogies where you say, for example, in the Capair model or in modern finance, you say stock prices behave like smoke diffusing from a cigarette end, doing Brownian motion. That's not literally true. It could be true, but it isn't.”
2016-02-26 · Masters in Business · Interview With Emanuel Derman: Masters in Business (Audio) · IDENTIFIED FROM THE TRANSCRIPT · source
“Okay, yeah, That's my feeling. I can give an example. So what I tried to do in that book was distinguish between models and theories as different means of approaching trying to explain the world animate or inanimate. Models seem to me to be analogies in the sense, for example, you say the brain is like a computer or the computer is like a brain people used to say. Now they go the other way. Or they say the heart is like a water pump. Or there's a great quote I like about fixed income from Schopenhauer where he says sleep is the interest that we have to pay on the capital which is called in a death. And the more regularly the interest is paid, the further the date of redemption is postponed.”
2016-02-26 · Masters in Business · Interview With Emanuel Derman: Masters in Business (Audio) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, I think my impression of what happened to long-term capital was that they were basically looking for very small deviations. Most things that earn you money in markets are when you buy something illiquid because illiquid things tend to be cheap. And so they were buying off-the-run treasuries out of the money options. I don't know the details anymore, but essentially things that were cheap. But in the long run would revert to the mean and give you the full amount. But they leveraged up like crazy to accentuate small pennies differences. And then when Russia defaulted, what happened was everybody in the world got scared. There's a flight to quality. Nobody wants to hold illiquid stuff and they were so overleveraged that they were put out of business.”
2016-02-26 · Masters in Business · Interview With Emanuel Derman: Masters in Business (Audio) · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, I think it impacts it. I think most financial models don't really take account of reflexivity. There's some models maybe are starting to do that, but I wouldn't say they're trading models. If I can summarize in one sentence, I would say that anytime you build a model, it's a financial model that's mathematical, you have to keep in the back of your head that you're actually short volatility, meaning if the world changes, your model is going to be wrong. It may make money for you, it may lose money for you, but it's certainly going to be wrong. Most models only work in a very narrow regime where things are more or less like the world you're in currently. And you see when you get to negative interest rates, for example, or when volatility blows up, or when you get the great financial crisis, all of these models stop working.”
2016-02-26 · Masters in Business · Interview With Emanuel Derman: Masters in Business (Audio) · IDENTIFIED FROM THE TRANSCRIPT · source
“That's you put your finger on the key problem in the whole field, which is people. Yeah, people, exactly. And that's why the models don't really work as well when you make a model, even Newtonian mechanics for describing how planets go around the sun. The planets don't really care what you say about them. And if you publish an article about them, they don't change their position. Even if you have the wrong theory about them. But really, if you look at what happens in financial markets, they interact with people. Financial markets are all about opinions and opinions affect the future and affect the present. So it's a much iffier field and models don't work as well. They don't describe the system as accurately.”
2016-02-26 · Masters in Business · Interview With Emanuel Derman: Masters in Business (Audio) · IDENTIFIED FROM THE TRANSCRIPT · source
“Become a professional field. I'm in charge of a program at Columbia where people get degrees in the field, professional degrees, and you can't just from an economic point of view, there's a glut of people. It's not so easy to get in now.”
2016-02-26 · Masters in Business · Interview With Emanuel Derman: Masters in Business (Audio) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, so a lot of the modeling, particularly in options and in describing fixed income instruments actually has its origin in economists who were trained in physics and started applying that kind of math to physics or stochastic calculus series discounting all really are physics, mathematics in particular physics inspired models. And so it's kind of a fairly natural transition for people to make. The trouble is a lot of physicists don't have the economics or the finance background and 30 years ago that wasn't a problem when I did it. They didn't expect you to know anything. The whole quantitative finance field was sort of amateur heaven. You just came along and people told you to pick up what happened to me when I came to Goldman. They said, read the Coxros, Rubenstein model for pricing options and start working. And now, so it was fairly easy in those. They hired you if you had potential. Now it's a much tougher transition.”
2016-02-26 · Masters in Business · Interview With Emanuel Derman: Masters in Business (Audio) · IDENTIFIED FROM THE TRANSCRIPT · source
“Okay, financial engineering, it's sort of a polyglot field. It's not really one simple thing. It developed over the last 25 or 30 years. It's a mix of building models for describing businesses and in more particularly securities involving mathematics, statistics, the use of computer science, programming, all inspired somewhat by physics or scientific type models and using the kind of math that's traditionally used in describing the inanimate world or the material world, but now applied for better or for worse to the world of stocks, bonds, securities, options, etc.”
2016-02-26 · Masters in Business · Interview With Emanuel Derman: Masters in Business (Audio) · IDENTIFIED FROM THE TRANSCRIPT · source