unSILOed with Greg LaBlanc 631. A Physicist’s View on the Inherent Risks of Financial Modeling with Emanuel Derman
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Mar 18, 2026 
Emanuel Derman, emeritus professor of financial engineering and former Wall Street quant, reflects on moving from particle physics to finance. He discusses how models differ from theories, why markets change when models are used, and the ethics of disclosing model limits. Conversations touch on programming’s role in early quant work, the rise of quants, and how AI and humility reshape modeling.
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From Physics Dropout To Revived Quant
- Emanuel Derman left physics for finance for family reasons and initially felt like a traitor to his field.
- After five difficult years he found Wall Street revitalizing because small contributions there had large impact and it felt socially richer than academic physics.
Models Versus Theories Are Fundamentally Different
- Derman distinguishes models as useful analogies from theories that aim to describe how the world actually works.
- He cites Maxwell's progression from a hydrodynamic model to Maxwell's equations as the archetype of model versus theory.
Models Change Markets When Widely Used
- Using a model can change the thing being modeled when many people adopt it, breaking prior regimes.
- Financial models can be self-referential: a small user base perturbs markets slightly, wide adoption transforms market behavior.
