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Quants, physicists working on Wall Street as quantitative analysts,
have been widely blamed for triggering financial crises with their
complex mathematical models. Their formulas were meant to allow
Wall Street to prosper without risk. But in this penetrating
insider's look at the recent economic collapse, Emanuel
Derman--former head quant at Goldman Sachs--explains the collision
between mathematical modeling and economics and what makes
financial models so dangerous. Though such models imitate the style
of physics and employ the language of mathematics, theories in
physics aim for a description of reality--but in finance, models
can shoot only for a very limited approximation of reality. Derman
uses his firsthand experience in financial theory and practice to
explain the complicated tangles that have paralyzed the economy.
"Models.Behaving.Badly. "exposes Wall Street's love affair with
models, and shows us why nobody will ever be able to write a model
that can encapsulate human behavior.
In "My Life as a Quant, " Emanuel Derman relives his exciting
journey as one of the first high-energy particle physicists to
migrate to Wall Street. Page by page, Derman details his adventures
in this field--analyzing the incompatible personas of traders and
quants, and discussing the dissimilar nature of knowledge in
physics and finance. Throughout this tale, he also reflects on the
appropriate way to apply the refined methods of physics to the
hurly-burly world of markets.
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