Kevin Horne wrote...
By the way, one piece of evidence that economics is maturing into a real science is that it is becoming usable by "engineers"; in particular, it has been applied to investment analysis and portfolio theory, resulting in significant improvements in investment performance.
Oh, that! That's kind of different. I used to do some work in evaluating funds comprised of mortgage-backed securities sprinkled with derivative securities. We used the Ho-Lee model (I later had one of my strangest interviews with the very same Ho). Indeed, such models are extremely mathematical, but this wasn't exactly what I was thinking about. (The models are not 'predictive' in the sense of predicting the econmy, but rather predicts the value of certain derivatives as a function of interest rates over time. The model actually generates a future price for every even remotely likely scenario, and then describes the output spread in terms of "volatility" wrt interest rates.)
(Actually, there are some computer-based trading firms that leverage minute instabilities of price, buying/selling huge numbers of shares to make big $$$. They certainly have teams of engineers/physicists/"financial engineers" building these models.)
-TD
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