The Quant / Financial Engineering Podcast Quant Finance and Physics
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Feb 25, 2024 Exploring the interconnected evolution of modern physics and finance, discussing the mathematical similarities between quantum physics and quantitative finance. Delving into the influence of quantum physics on finance, highlighting the impact of mathematical structures on our modern view of uncertainty and randomness in different domains.
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Physics Background Led Sam To Financial Engineering
- Sam Black transitioned from a physics undergraduate to Lehigh's Master in Financial Engineering after learning about physicists who moved into quant finance.
- He cites Emmanuel Derman and historical physicists-turned-quants as inspirations for his career path.
Shared Mathematical Foundations And External Validation
- Quantitative finance and physics share applied mathematics and external validation beyond internal consistency.
- Sam notes both fields test models against real outcomes: physics by space missions and nuclear tests, quant finance by whether models make money or price accurately.
Black Scholes Is Like Newtonian Mechanics
- Black–Scholes works in many situations but fails in volatile tail events, analogous to Newtonian mechanics failing at relativistic scales.
- Sam uses this analogy to caution against treating models as exact truth rather than useful approximations.