Similar to his book, his lecture was very fascinating. Emanuel Derman; the former GS quant, the present professor in IE&OR Department of Columbia University in NY, and the writer of the fabulous book My Life as a Quant : Reflections on Physics and Finance; gave a lecture in Fields institute entitled “Metaphors, Models & Theories in Science and Finance”.
He started to discriminate between models and theory with the emphasis on finance. According to Derman, metaphor is just like what Arthur Schopenhauer mentioned “Sleep is the interest we have to pay on the capital which is called in at death; and the higher the rate of interest and the more regularly it is paid, the further the date of redemption is postponed.”
Models are metaphoric insights. However, theories are the truth. So, we have to consider the limitations of the models. Best way to say; “by building models, we sweep the dust under the rug. But, in practice, we need to aware our customers about that.”, he urged. He remembered the audience the joke-wise word of Andrew lo: “In physics it takes three laws to explain 99% of the data; in finance it takes more than 99 laws to explain about 3%.” But, “there is one law in finance.” he mentioned, “The law of one price.”
P.S.1: Soon, you will find his beautiful slides with his audio in Fields Institute website.
P.S.2: I'm going to pay me interest for tonight.
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