Goldman Top Quant to Leave Wall Street
Emanuel Derman, managing director and head of the quantitative risk strategies group in the firm-wide risk department in New York, is leaving Goldman Sachs next month. Derman is one of the most prominent quantitative analysts in the options area,” according to Andrew Harmstone, head of European derivatives and quantitative research at Lehman Brothers in London. Derman also won the International Association of Financial Engineers’ coveted Financial Engineer of the Year award in 2000.
Derman said he will be taking time off to undertake quantitative research and write books and is considering becoming an academic. He said there are a lot of graduates from business schools who end up on Wall Street and it would be nice to have some flow in the opposite direction. “People who haven’t been on Wall Street tend to have more unrealistic or idealist views. They think things are more perfect than they really are,” Derman said. He has some academic offers, but would first like to write a book about options. Derman reported to Noel Donohoe, managing director and head of firm-wide risk. Donohoe was traveling and could not be reached for comment at press time.
One of Derman’s most significant contributions to quantitative research is in analyzing the volatility surface, said Lehman’s Harmstone. This work showed that the delta of an option can change with different implied vols, which means it is possible for a position to be overhedged. For example, if the price of the underlying falls, the implied vol will often rise, but the delta will not increase as much as had been previously expected, leaving the position overhedged.
Derman has been head of the quantitative risk strategies group in the firm-wide risk department since early 2000, focusing on the pricing of exotic products and the development of proprietary risk models.
Previously, Derman led the quantitative strategies group in the equity division for 10 years at Goldman, building models and trading-software used by its equity derivatives group. He said he also worked for the firm from 1985-1988 in the financial strategies group and the modeling group. He worked with Fischer Black and Bill Toy during that period, which led to the development of the Black-Derman-Toy (BDT) yield-curve model, which values interest-rate dependent claims incorporating the entire term structure of interest rates. Douglas Long, head of quantitative research and development at Principia Partners in London, said, The BDT model is one of the most popular one-factor models.”