My guest today is Emanuel Derman, a South African-born businessman and writer, best known as a quantitative analyst. Derman, who first came to the U.S. at age 21, in 1966, is currently a professor at Columbia University and Director of its program in financial engineering. Until recently he was also the Head of Risk and a partner at KKR Prisma Capital Partners, a fund of funds.
The topics are his books My Life As A Quant: Reflections on Physics and Finance and Models Behaving Badly.
In this episode of Trend Following Radio we discuss:
- Why economics can be an ‘incestuous’ field
- Economics as a moral science
- Why all four of the US investment banks were not allowed to go by the wayside
- Derman’s background and his PhD in theoretical physics
- Derman’s early eye-opening experiences at Goldman Sachs
- Model building, and how Derman was indoctrinated into the world of model building
- The financial model and science and the physics model and science
- Short volatility models vs. long volatility models
- How one estimates risk
- Models vs. theories
- Whether Derman finds a certain amount of pushback from others in the academic community
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