Unboxed - Creating Quant Models That Are Closer to Reality - NYTimes.com
Wall Street’s Math Wizards Forgot a Few Variables
By STEVE LOHR
Published: September 13, 2009
In the aftermath of the financial crisis, many experts want formulas for risk that look at human behavior and how it can change rapidly.
Excerpts:
The risk models proved myopic, they say, because they were too simple-minded. They focused mainly on figures like the expected returns and the default risk of financial instruments. What they didn’t sufficiently take into account was human behavior, specifically the potential for widespread panic. When lots of investors got too scared to buy or sell, markets seized up and the models failed.
That failure suggests new frontiers for financial engineering and risk management, including trying to model the mechanics of panic and the patterns of human behavior.
Read Full Article: http://www.nytimes.com/2009/09/13/business/13unboxed.html
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http://dreamlearndobecome.blogspot.com This posting was made my Jim Jacobs, President & CEO of Jacobs Executive Advisors. Jim also serves as Leader of Jacobs Advisors' Insurance Practice.
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