Posts tagged as:

models

Chaos and markets

October 20, 2010

This morning I came across a post by David Varadi on the (futile?) quest for simplicity. He writes: The most optimistic quantitative researcher knows deep down that an unexplained noise dominates the data that mysteriously eludes linear models such as regression. Markets are chaotic systems characterized by feedback. If they were neat and orderly (and [...]

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Aggravation (but keep reading)

May 16, 2009

I happen to like this article by Niall Ferguson for the Times Magazine, in particular this bit: Human beings are as good at devising ex post facto explanations for big disasters as they are bad at anticipating those disasters. It is indeed impressive how rapidly the economists who failed to predict this crisis — or [...]

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Monte Carlo: house of cards?

May 8, 2009

The WSJ recently ran apiece on Monte Carlo risk management: Here is how a typical Monte Carlo retirement-planning tool might work: The user enters information about his age, earnings, assets, retirement-plan contributions, investment mix and other details. The calculator crunches the numbers on hundreds or thousands of potential market scenarios, guided by assumptions about inflation, [...]

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On the age of empiricism

May 1, 2009

Caught this on Rortybomb - Barry Eichengreen has penned an excellent piece on the role of models in academia and finance, as well as the growing importance of empiricism (a point with which I particularly empathize).  An excerpt: Maybe so. But amid the pervading sense of gloom and doom, there is at least one reason for [...]

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Models are just the tool

April 17, 2009

I'm a big fan of Emanuel Derman.  His memoir My Life as a Quant tells the story of a young physics Ph.D. who stumbled into finance and eventually became the head of Goldman Sach's Quantitative Risk Strategies group.  He currently oversees the financial engineering program at Columbia University and is the CRO of Prisma Capital. Today [...]

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All models are wrong

February 27, 2009

George Box, renowned statistician, acutely observed: Essentially, all models are wrong, but some are useful.

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