Mr Emmanuel Derman and his pal Mr Paul Wilmott have assembled in New York City and written a manifesto - the Financial Modelers Manifesto, no less.
Stung by the abject failure of financial market models in general, the pair want to bring modelling into a modern, post-crunch age, where hopefully practitioners will avoid their previous habit of sweeping all unknown factors and other dirt under a rug labelled “default correlation.”
Messrs Derman and Wilmott — whose lively blog and forum can be read here — have learnt to be very humble when it comes to applying mathematics to markets. They only wish teachers of finance had done the same, sparing us all those textbooks where “stilts of mathematical axioms (are) supporting a house of numbered theorems, lemmas and results.”
They declare:
MODELERS OF ALL MARKETS, UNITE! You have nothing to lose but your illusions.
Before giving us the Modelers’ Hippocratic Oath
I will remember that I didn’t make the world, and it doesn’t satisfy my equations.
Though I will use models boldly to estimate value, I will not be overly impressed by mathematics.
I will never sacrifice reality for elegance without explaining why I have done so.
Nor will I give the people who use my model false comfort about its accuracy. Instead, I will make explicit its assumptions and oversights.
I understand that my work may have enormous effects on society and the economy, many of them beyond my comprehension.Related links:
Paul Wilmott’s blog
Quant blame me - FT Alphaville
