Tag Archives: Paul Wilmott

-rePost-Recipe for Disaster: The Formula That Killed Wall Street

FHM winner
Image by SUPERL0L0 via Flickr

Thanks to Paul Wilmott for the pointer here. I learned a lot from this article by Felix Salmon and its somewhat fun to read!

In the world of finance, too many quants see only the numbers before them and forget about the concrete reality the figures are supposed to represent. They think they can model just a few years’ worth of data and come up with probabilities for things that may happen only once every 10,000 years. Then people invest on the basis of those probabilities, without stopping to wonder whether the numbers make any sense at all.

As Li himself said of his own model: “The most dangerous part is when people believe everything coming out of it.”

Recipe for Disaster: The Formula That Killed Wall Street.

Reblog this post [with Zemanta]

rePost: Excellent Ranty Advice from Paul Wilmott:Paul Wilmott’s Blog: Copulas and Cults

American model and television host Michele Merkin.
Image via Wikipedia

Can’t say I blame him.  People generally hate being different in a real way. The way I observe things, it seems most people just want to stand-out in the center of attention kind of way and not in the different trailblazing kind of way that I admire!

What you think of as just you job consumes probably from 2-10 hours of a 24 hour day. If you add in all the stuff you do because of work like commuting/preparing reports outside office hours/even shopping for office clothes/stuff etc . You can’t deny that what you call as just your job consists of the majority of your usable waking hours.

We need to take charge of our lives and have pride in what we do, and as human beings we have the capacity to think and analyze complex stuff.  Why are we not doing exactly that?

As for the picture, for somer strange reason Zemanta thinks it’s relevant!

But that’s only part of the problem. Far more serious, because it extends to all of finance not just to a single model, is the poor education that people get in university financial engineering programs and also the blind-following-the-blind behaviour that is so common throughout the industry.

The copula model is not robust to changes in model assumptions. Black-Scholes is. Did you know that? Or maybe I’m wrong. Would you like to know the truth?

Yes, I could tell you. I could spoonfeed you. You’ve got used to being spoonfed, haven’t you? But you’re passing the buck there, putting an awful lot of responsibility on my shoulders. I can cope, as I’m sure David Li can cope. But you’re a big boy/girl now, you should be able to think for yourself. Isn’t that part of your job description?

It’s getting quite tedious me telling people to get off their backsides and test the models for themselves. Don’t believe anything I say, don’t believe anything Nassim, also quoted in the Salmon article, says. Question everything. Switch your brains back on.

Paul Wilmott’s Blog: Copulas and Cults.

Reblog this post [with Zemanta]