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Hello I Must Be Going

This is likely my last blog post at wilmott.com…. I’d be glad if you continued reading me blogs.reuters.com….

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For a good many years I have been blogging at www.wilmott.com….

Paul, a friend as well as a colleague with whom I wrote The Financial Modelers’ Manifesto, and someone whose taste in finance I admire, invited me to blog there and I probably wouldn’t have done it if it hadn’t been him. I think I’m one of the few really regular bloggers there though, and recently Jim Ledbetter and Felix Salmon invited me to blog on Reuters, here and I decided to switch.

I also write on Twitter @emanuelderman

What follows, for continuity’s sake is roughly the contents of my first blog on Reuters, who use WordPress which allows a little more format flexibility.

A bit about myself and my interests:

Myself

I grew up in South Africa, came to the US to study physics, got a PhD from Columbia in 1973, worked in academia doing theoretical physics for seven years, worked at Bell Labs for five, worked at Goldman Sachs for about 17, where I ran several quant groups and was eventually head of quantitative risk management. I left Goldman in 2002 and have been a professor at Columbia University since then, where I run the financial engineering program, and am also a principal at Prisma Capital Partners, where I co-head risk management. Needless to say, but important to stress, this blog and anything in it is entirely mine, and has nothing to do with Columbia or Prisma.

In 2004 I wrote a book called My Life as a Quant which introduced the quant world to a wider public. I also have a website at www.ederman.com…

Being labeled a quant used to be a pejorative in the geeky sense, but now it’s become trendier, but also occasionally pejorative in a harsher way. Ben Zimmer in the NY Times wrote an article about quants here and the NY Times Science section had an article here. But quant means something different now from what it used to, and many people who now call themselves quants wouldn’t have qualified as quants in the old days, something I will write about later.

Models.Behaving.Badly

is the name of a new book of mine, to be published by Free Press on Oct 25 2011 in the US and Canada, and by Wiley in the UK. It’s prelisted on Amazon but not really available yet — I’m still waiting to see a cover design from the publisher. It’s full title is Models.Behaving.Badly: Why Confusing Illusion with Reality Can Lead to Disaster, on Wall Street and in Life

It’s about metaphors and analogies, about the nature of modeling and theorizing, the difference between them, why financial models will intrinsically and always at best be very limited approximations to reality, and what to do as a consequence.

What I’m Interested In

Though I started blogging as a quantitative financier, I found myself writing about many other things, which I intend to do here too. If you want to get an idea, you can look at my old blog site at www.wilmott.com…

I’m interested in

Models, and in particular models behaving badly. The first chapter of my forthcoming book is called A Foolish Consistency and is about models behaving badly in personal and political life — I grew up under apartheid.

Finance and financial theory, and what it can tell you about the wider world, since many financial models deal with volatility, omnipresent in human life. I was going to call my current book Time Decay rather than Models.Behaving.Badly, and wrote a novella to illustrate the idea of Time Decay in human life, but that will have to wait for another attempt.

Ethics, particularly in the financial world.

Philosophy, but only as a guide to living.

Literature. One of my favorite authors is Nabokov; another is Flaubert.

Some Topics I’ll Write About Eventually

Options models and how to understand them

Finance

Financial engineering, computational finance, etc

The volatility smile

Physics sometimes

The benefits of shallowness vs deepness in financial modeling

Sophisticated vulgarity, an approach I like to financial modeling etc

Plus random things I notice that interest me

Spinoza

I like Spinoza, a deep theorizer (not a modeler) and part of my book is about him too. Spinoza regarded all emotions as derivatives of pain, pleasure and desire, just as all options are derivatives of equity, fixed income and credit. Here above is a part of a diagram that illustrates Spinoza’s theory of emotions. I originally drew it in color but Free Press, suitably frugal in these hard times, won’t print it in color and so I had to convert it to b&w, also reproduced below. That was quite a job, because in b&w you have to use shape and font to convey similarity and dissimilarity that can be more easily conveyed with color.

More later at blogs.reuters.com…

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