Why do we—bankers in particular—continue to put so much faith in financial models, when time and again they have failed, in some cases with catastrophic effects on the economy? Author and former quantitative analyst Emanuel Derman will discuss why it is a terrible mistake to trust models. Though financial models imitate the style of physics and employ the language of mathematics, they ultimately deal with human beings. This is problematic because models in physics aim for a description of reality while economists’ equations are limited in that area. The author will also discuss what a model is, and then highlight the differences between the successes of modeling in physics and its failures in economics. He will also cover the collapse of the subprime mortgage CDO market in 2007, urge us to stop a naïve reliance on these models, and offer suggestions for mending them.
You can find the full details of the event here.
Cam Hui is a portfolio manager at Qwest Investment Fund Management Ltd. ("Qwest"). This article is prepared by Mr. Hui as an outside business activity. As such, Qwest does not review or approve materials presented herein. The opinions and any recommendations expressed in this blog are those of the author and do not reflect the opinions or recommendations of Qwest.
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