28 September 2005

Time decay

Some uplifting thoughts on graduate study from Emanuel Derman’s
My Life as a Quant: Reflections on Physics and Finance:

...[A]s a postdoctoral researcher at Oxford in 1976, I
experienced a minor epiphany about ambition’s degradation. At age 16
or 17, I had wanted to be another Einstein; at 21, I would have been
happy to be another Feynman; at 24, a future
T.D. Lee would have
sufficed. By 1976, sharing an office with other postdoctoral
researchers at Oxford, I realized that I had reached the point where
I merely envied the postdoc in the office next door because he had
been invited to give a seminar in France. In much the same way, by a
process options theorists call time decay, financial stock options
lose their potential as they approach their own expiration.

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