On Aug 24, 2007, at 10:33 AM, Julio Huato wrote:
The quibbling about quant models implies that they are flawed or wrong. This begs the question -- flawed or wrong compared to what?
You're right up to a point Julio. Models can be illuminating. But the way they're often used in the markets is to: 1) try to beat the market, which is impossible over the longer term, 2) hedge against risk, which though it makes sense a lot of the time, is prone to go haywire when most needed, in a financial crisis, and also dulls participants' sense of risk, producing a kind of moral hazard, and 3) to bury toxic shit in structured securities that almost no one but their makers understand. Hubris and fraud cause problems. Doug
