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the Catholic University of Leuven,Belgium. He has been a consult-ant to the banking industry. Wimis author of the Wiley book LvyProcesses in Finance: Pricing Financial

Derivatives and editor (together withA E Kyprianou and P Wilmott) of theWiley-book Exotic Option Pricingand Advanced Lvy Models. Hisresearch interests cover all areas offinancial Mathematics, in particularLvy models. He recently has pub-lished on advanced equity models,model risks, hedging of varianceswaps, jump driven credit modelsand multivariate financial mod-eling. He currently teaches severalcourses related to financial engineer-ing in different Masters programsand is an engaging lecturer for thefinancial industry.

Contribution toQuantitative Finance(Implementation)

WINNEREmanuel Derman

Along with Fischer Black, EmanuelDerman is one of the people respon-sible for molding Goldman Sachsreputation of the late eighties andearly nineties. Derman paid equalattention to financial modeling andits implementation in the trading

world. The Black, Derman Toy (BDT)yield curve model and Derman-Kani local volatility model are nowubiquitous, as is the move from hardscience to the markets and it wasDerman who helped beat that path.Derman joined Goldman in 1985 inits financial strategies group. Afterdeveloping BDT , Derman movedto spearheading the GS-One object-oriented modeling library. He took

a break from Goldman for a yearworking at the adjustable rate mort-gage research group at SalomonBrothers at the end of the decade

indeed been a very nice surprise,topping a gorgeous day filled withsun and beauty. I just finished read-ing a novel by Andr Gide and I wasmeditating on his sentence Rien nedcourage plus la pense que cette persist-

ence de lazur.Life needs a balance between

effort and idleness, and New Yorkcertainly gives strong incentives tothe former. These last two years atBloomberg in NY have been intense,stimulated by an excellent researchenvironment and the opportunityto present in numerous places myrecent results on volatility deriva-tives, optimal hedging strategies,technical analysis, skew modelingand volatility arbitrage, amongstother.

I want to thank the people whojudged my work worthy the award

and wish to congratulate Wilmottforhaving established in a short spanof time a respected publication anda hugely popular forum. Finally, Iwant to thank my wife and my twokids for their constant love and sup-port.

NOMINEES

Vladimir Piterbarg

Head of Fixed Income QuantitativeResearch Barclays Capital. Prior to

this he lead the quantitative inter-est rate modelling group at Bankof America which governed thebanks approach to rates based prod-ucts globally. He gained his PhD inMathematics (Stochastic Calculus)at the University of SouthernCalifornia.

Wim Schoutens

Wim Schoutens has a degree in

Computer Science and a PhDin Science, Mathematics. Heis a research professor in theDepartment of Mathematics at

Contribution toQuantitative Finance(Cutting Edge Research)

WINNERBruno Dupire

Bruno Dupire has headed theDerivatives Research teams atSociete Generale, Paribas CapitalMarkets and Nikko FinancialProducts before joining Bloombergto develop pricing, risk manage-ment and arbitrage models. He isbest known for having pioneeredthe widely used Local Volatilitymodel (simplest extension of theBlack-Scholes-Merton model tofit all option prices) in 1993 andsubsequent stochastic volatilityextensions. His recent work includespricing and hedging of volatilityderivatives and optimal delta hedg-ing strategies. Before these years,

he obtained a Masters Degree inArtificial Intelligence, a PhD inNumerical Analysis and introducedthe use of Neural Networks for finan-cial time series forecasting. He is aFellow and Adjunct Professor at NYU.

REACTION

This award reached me duringmy vacation in St Barth, and it has

WilmottAwards2006

The winners of this

years awards as

voted by users of

wilmott.com

Bruno Dupire

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before returning to Goldman Sachsin 1990 as head of its equities divi-sions quantitative strategies group.

Derman devoted the next ten yearsto developing models of volatilitybehavior, exotic options pricing andvariance swaps, as well as buildingtrading software for Goldmansequity derivatives division. Dermanmoved to firmwide risk in early 2000as head of its derivatives analysisgroup, where he ran Goldmansquantitative risk strategies group in2001 His hallmark has always beenan ability to bring the best aspects of

an academic approach to heel in thereal world, as described in his recentbookMy Life as a Quant: Reflections onPhysics and Finance.

REACTIONI was very gratified to be the recipi-ent of the Wilmott Award. I learnedfrom experience to regard quantita-tive finance as a multi-disciplinaryfield, a mix of financial theory,

mathematics and computer science,overlaid with a skeptical attitudeand an ability to talk to and learnfrom the people who use this stuff to

survive.The mix of disciplines that

makes the field so stimulating waseasier to achieve when I started outin this business and everything wasless specialized. I still like mixtures combining pie-in-the-sky theorywith the indignities of reality, work-ing alone and then interacting withpeople. I suppose mixtures are partof the reason I like derivatives too.So, Im particularly pleased to bethe recipient in the QuantitativeFinance (implementation) category. Ithank Wilmottand its readers for thishonor.

NOMINEES

Bruno Dupire

Peter Jaeckel

Dr. Peter Jaeckel is the Global Headof Credit, Hybrid, Commodity

and Inflation Derivatives, ABNAMRO. He received his DPhil fromOxford University in 1995. Jaeckelhas worked with CommerzbankSecurities in London in the frontoffice product development andderivatives modeling group. Prior tothat he worked within the NatWestGroup/Royal Bank of ScotlandQuantitative Research Centre. Hestarted his career in finance withNikko Securities London opera-

tion in 1997. His bookMonte CarloMethods in Financehas become aninvaluable resource for quantitativeanalysts who need to run modelsthat assist in option pricing and riskmanagement. This concise, practi-cal hands-on guide to Monte Carlosimulation introduces standard andadvanced methods to the increasingcomplexity of derivatives portfolios.Ranging from pricing more complex

derivatives, such as American andAsian options, to measuring Value atRisk, or modeling complex marketdynamics, Jaeckel has shown that

simulation is the only method gener-al enough to capture the complexityand Monte Carlo simulation is thebest pricing and risk managementmethod available.

TechnologicalDevelopment

WINNER ITO 33

REACTION

Elie Ayache, founder, ITO 33Some people call our products dif-ficult and esoteric. Indeed modernderivative pricing is a very hardproblem that is crying out for a radi-

cal revision of the technology, evenfor a philosophical critique to try toestablish what we expect from thetechnology in the first place.It is hard to replace Black-Scholesnot only because this historic modelis so widely used but because thehardest part is to first understandhow Black-Scholes can be so simple.The primary task should be tountangle the strands that make upBlack-Scholes: implied volatility

and dynamic hedging, and see howthey can be preserved and general-ized in a world that is obviously notBlack-Scholes. That my company haswon this years Wilmott Award forTechnological Development is proofthat our philosophy and its applica-tion to derivative technology is nowmeeting with public recognition.Our advanced numerical schemesreplace the speed and robustness of

the analytical Black-Scholes formula.Our solution for calibration and rec-alibration replaces implied volatil-ity, and our algorithm for dynamic

optimal hedging in incomplete mar-kets replaces the Black-Scholes delta.However the best is yet to come aswe will soon unveil the ultimate toolthat encapsulates all these radicaladvances

NOMINEES

Xenomorph

UnRisk

Software

WINNERMatlabNOMINEES

FinCAD

Mathematica

SciFinance

Insightful

Educator

WINNERNassim Nicholas TalebNNT is the Deans Professor inthe Sciences of Uncertainty at theUniversity of Massachusetts atAmherst. He is also an essayist, bel-letrist, literary-philosophical-math-ematicalflneur, and practitionerof uncertainty (mathematical

trader) focusing on the attributesof unexpected events, with a focuson extreme deviations, the BlackSwans (i.e. outliers), their unpre-dictability, and our general inabilityto forecast.

NNT is only interested in onesingle topic, chance (particularlyextreme & rare events); but it fallsat the intersection of philosophy/epistemology (skepticism; knowl-

edge about the dynamics of history;inferential claims), philosophy/eth-ics (stoicism facing random events;theories of nonhedonic happiness),

2006 WILMOTT AWARDS

Emanuel Derman

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2006 WILMOTT AWARDS

mathematics (probability, statisti-cal physics), social science/finance(opacity & incomplete information;why economists have no clue butthink that they know a lot), and cog-nitive science (how we are fooledby randomness). He mainly deriveshis intuitions from a 2-decade longand intense practice of derivativestrading (nondull activities withplenty of randomness). The ideas areexpressed in literary form in the tril-ogy:Fooled by Randomness(2001, 2004,17 languages, confusion of luck andskills), The Black Swan(2006, episte-mology/philosophy of history, his-tory explained by large deviations),and Chance and the Logic of Happiness(c. 2007, ethics/ stoicism, nonhedon-ic happiness).

REACTION

This is an honor for me particu-larly that I give a small number oflectures. I lecture just as I write,from my guts not my brain, withno regards for formalism and withcontempt for anything remotely aca-demic. I never thought that it wouldever be recognized. Thank you forputting up with me and giving methis award.

NOMINEES

Mike Staunton

Mike has been demystifying thearcane of spreadsheet modelling forboth academics and practitionersfor two decades and over that timehas become rather good at it! He isthe author (with Mary Jackson) ofthe blockbusterAdvanced Modelling inFinance using Excel and VBAthe bookwith no exercises and lots of practi-cal code that works. His regularcolumn in Wilmottmagazine contin-ues this service to the communitywith concision and applicabilitythat are Mikes hallmarks. Mike isbased at the London Business Schoolwhere he is a director of the LondonShare Price Database. Mike is visit-ing lecturer in Numerical Methodsat Cass Business School in London,where he teaches on the Masters in

Mathematical Trading and Finance

Bill Ziemba

Bill is the Alumni Professor ofFinancial Modeling and StochasticOptimization, Emeritus in theSauder School of Business, Universityof British Columbia where he taughtfrom 1968 to 2004. He now teaches asa visiting professor. His experience isregularly imparted to the readers ofWilmottthrough his regular column

which provides insight into aspectsof scenario management both his-torical and current and an alwaysengaging insight into his research inasset-liability management, portfoliotheory and practice, security marketimperfections, Japanese and Asianfinancial markets, sports and lotteryinvestments and applied stochasticprogramming Bill is series editorfor North Hollands Handbooks in

Finance series and is author or edi-tor of a continuing stream of influen-tial books in various areas of invest-ments and financial markets, and is a

frequent speaker at conferences andseminars around the world.

New Book of the Year(General Finance)

WINNERFreakonomicsSteven D Levitt, Stephen J Dubner

Allen Lane Penguin (2005)

Which is more dangerous, a gun ora swimming pool? What do school-teachers and sumo wrestlers have incommon? Why do drug dealers stilllive with their moms? How much doparents really matter? What kindof impact did Roe v. Wade have onviolent crime?

Through forceful storytellingand wry insight, Levitt and co-authorStephen J. Dubner show that econom-ics is, at root, the study of incentives

- how people get what they want, orneed, especially when other peoplewant or need the same thing. InFreakonomics, they set out to explorethe hidden side of well, everything.The inner workings of a crack gang.The truth about real-estate agents. Themyths of campaign finance. The tell-tale marks of a cheating schoolteach-er. The secrets of the Ku Klux Klan.

Freakonomicsestablishes thisunconventional premise: if moral-

ity represents how we would likethe world to work, then economicsrepresents how it actually does work.It is true that readers ofthis book will be armedwith enough riddles andstories to last a thousandcocktail parties. ButFreakonomicscan providemore than that. It will lit-erally redefine the way we

view the modern world.

NOMINEES

Fortunes Formula: The

Untold Story of the Scientific Betting

System That Beat the Casinos and

Wall Street

William Poundstone

Farrar, Strass & Giroux Hill & Wang

(2005)

In 1956 two Bell Labs scientists dis-covered the scientific formula forgetting rich. One was mathemati-cian Claude Shannon, neuroticfather of our digital age, whose gen-ius is ranked with Einsteins. Theother was John L. Kelly, Jr., a Texas-born, gun-toting physicist. Togetherthey applied the science of informa-tion theory the basis of computersand the Internet to the problem ofmaking as much money as possible,as fast as possible.

Shannon and MIT mathematicianEdward O Thorp took the Kelly for-mula to the roulette and blackjack

tables of Las Vegas. It worked. Theyrealized that there was even moremoney to be made in the stock mar-ket, specifically in the risky tradingknown as arbitrage. Thorp used theKelly system with his phenomenallysuccessful hedge fund Princeton-Newport Partners. Shannon becamea successful investor, too, toppingeven Warren Buffetts rate of returnand using his wealth to drop outof the scientific world.FortunesFormulatraces how the Kelly formulasparked controversy even as it madefortunes at racetracks, casinos, and

trading desks. It revealsthe dark side of thisalluring scheme, whichis founded on exploitingan insiders edge. Thecast of character spans J.Edgar Hoover, RudolphGiuliani, Michael Milken

and Warren Buffett;Hollywood producers,Wall Street crooks, snarkyNobel Laureates, and

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the Jewish mob.Fortunes Formulaexplores a new and surprising side tothe Shannon legacy. Based in part onShannons previously unseen person-al records as well as interviews withboth of Shannons wives, Thorp, andmany others, it is the f irst full-lengthtreatment of a subject that is chang-ing ideas about finance. ClaudeShannon believed it was possible fora smart investor to beat the market andFortunes Formulawill convinceyou he was right.

Busting Vegas: The MIT Whiz Kid

Who Brought the Casinos to Their

Knees

Ben Mezrich

William Morrow HarperCollins

(2005)

Semyon Dukach was known as theDarling of Las Vegas. A legend at age

twenty-one, this cocky hotshot wasthe biggest high roller to appear inSin City in decades, a mathematicalgenius with a system the casinoshad never seen before and couldntstop a system that has never beenrevealed until now; that has noth-ing to do with card counting, wasntillegal, and was more powerful thananything that had been tried before.

Las Vegas. Atlantic City. Aruba.Barcelona. London. And the jewel of

the gambling crown Monte Carlo.Dukach and his fellow MIT

students hit them all and mademillions. They came in hard, withstacks of cash; big, seemingly insanebets; women hanging on their arms;and fake identities. Although theywere taking classes and studyingfor exams during the week, overthe weekends they stormed theblackjack tables only to be harassed,

banned from casinos, threatenedat gunpoint, and beaten in Vegassnotorious back rooms.

In the classroom, they were

geeks. On the casino f loor, they wereunstoppable.

Busting Vegasis Dukachs unbe-lievably true story; a rivetingaccount of monumental greed,excess, hubris, sex, love, violence,fear, and statistics that is high-stakesentertainment at its best.

Fischer Black and the Revolutionary

Idea of Finance

Perry Mehrling

Wiley (2005)Fischer Black and the Revolutionary Idea

of Financeexplores Fischer Blacksintellectual journey from Harvardto the offices of ADL, from theUniversity of Chicago to MIT, andthen to Goldman Sachs. Years ofresearch and interviews with Blacksbusiness and academic associates,as well as family and friends, are

distilled into a scholarly yet personalstory of the formation and develop-ment of the extraordinary mind andunique character of this unassum-ing renegade. This poignant booktells the story of one mans intellec-tual adventure at the very center ofmodern finance. It is a story aboutthe birth of quantitative finance andfinancial engineering. It is also thestory about the continuing humanquest to defeat the dark forces

of time and ignorance, as JohnMaynard Keynes famously put it.

New Book of the Year(Quantitative Finance)

WINNERInside Volatility Arbitrage:The Secrets of Skewness

Alireza Javaheri

Wiley (2005)

Todays traders want to know whenvolatility is a sign that the sky is fall-ing (and they should stay out of themarket), and when it is a sign of a

possible trading opportunity.InsideVolatility Arbitrage can help them dothis. Author and financial expertAlireza Javaheri uses the classicapproach to evaluating volatility time series and financial econo-metrics in a way that he believes issuperior to methods presently usedby market participants. He also sug-gests that there may be skewnesstrading opportunities that can beused to trade the markets more prof-itably. Filled with in-depth insightand expert advice, Inside VolatilityArbitrage will help traders discoverwhen skewness may present valu-able trading opportunities as well aswhy it can be so profitable.

NOMINEES

Finance and Derivatives:

Theory & Practice

Sebastien Bossu andPhilippe Henrotte

Wiley (2005)

Finance & Derivatives: Theory & Practice- by Bossu & Henrotte is a translationof the successful French languagebook Exercises de Finance desMarches, published by Dunod. It con-tains a selection of exercises, alongwith the relevant financial theory,that can be used by advanced under-graduate and postgraduate students.

As well as being ideal for adoptionon university courses, it will also behighly valuable as a self-study guidefor practitioners.

Asset Price Dynamics,

Volatility, and Prediction

Stephen J. Taylor

Princeton University Press

(2005)Stephen Taylor provides

a comprehensive intro-duction to the dynamicbehavior of asset prices,relying on finance theory

and statistical evidence. He usesstochastic processes to define math-ematical models for price dynamics,but with less mathematics thanin alternative texts. The key topicscovered include random walk tests,trading rules, ARCH models, stochas-tic volatility models, high-frequencydatasets, and the information thatoption prices imply about volatilityand distributions.

Asset Price Dynamics, Volatility, and

Predictionis ideal for students of eco-nomics, finance, and mathematicswho are studying financial econo-metrics, and will enable researchersto identify and apply appropriatemodels and methods. It will likewisebe a valuable resource for quantita-tive analysts, fund managers, riskmanagers, and investors who seekrealistic expectations about future

asset prices and the risks to whichthey are exposed.

Quantitative Finance for Physicists