Models.behaving.badly

Models.behaving.badly

Why Confusing Illusion With Reality Can Lead to Disaster, on Wall Street and in Life

Book - 2012
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Now in paperback, "a compelling, accessible, and provocative piece of work that forces us to question many of our assumptions" (Gillian Tett, author of Fool's Gold ).

Q uants, physicists working on Wall Street as quantitative analysts, have been widely blamed for triggering financial crises with their complex mathematical models. Their formulas were meant to allow Wall Street to prosper without risk. But in this penetrating insider's look at the recent economic collapse, Emanuel Derman--former head quant at Goldman Sachs--explains the collision between mathematical modeling and economics and what makes financial models so dangerous. Though such models imitate the style of physics and employ the language of mathematics, theories in physics aim for a description of reality--but in finance, models can shoot only for a very limited approximation of reality. Derman uses his firsthand experience in financial theory and practice to explain the complicated tangles that have paralyzed the economy. Models.Behaving.Badly. exposes Wall Street's love affair with models, and shows us why nobody will ever be able to write a model that can encapsulate human behavior.
Publisher: New York : Free Press, 2012.
Copyright Date: ©2011
ISBN: 9781439164990
1439164991
9781439164983
Branch Call Number: 003 DER
Characteristics: vii, 231 pages :,illustrations ;,22 cm
Alternative Title: Models behaving badly

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pm221
Feb 03, 2017

Nicely written with considerable auto-biographical detail, this does not really deliver on the subject matter. It does provide a useful distinction between theory and models, but loses focus on the model aspect.

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StarGladiator
Oct 16, 2013

I have to call out Derman on such a specious book with such a specious premise: as if there were real models involving the ultra-financial fraud perpetrated by the banksters, their hedge funds, and the Wall Street players! Having a housing financial model which ONLY allows for rising rates, IS NOT a model! Utilizing non-correlating formulae, IS NOT the way to correctly model! I realize it is impressive to hear Derman's background in physics and his Ph.D., but I've argued PhD physicists to a standstill in the past, so it's no biggie. Simply stated, refusing to include all the pertinent variables, refusing to include those which correlate, but instead being militantly dishonest by proclaiming that they DON'T CORRELATE, IS NOT modeling. Period!

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