A Quant Speaks Out

Bloomberg not only quoted a financial math geek in this article but also alerted us that one of them is a bloggin' fool.

Financial markets have grown too dependent on mathematicians who use models to anticipate price moves and need to start injecting common sense into the equation, said Paul Wilmott, a London-based author and quantitative finance instructor.

“There is too much mathematics in this business,” Wilmott, author of “Paul Wilmott on Quantitative Finance,” said in a Bloomberg Radio interview. “I just want people to stop and think for once.”

Wilmott, based in London, has warned that so-called quants who use mathematics to forecast how markets will behave can overlook errors in the models, leading to flawed predictions.

“People don’t really question those assumptions enough,” said Wilmott, who founded the Diploma in Mathematical Finance at Oxford University, according to his Web site. “If the assumptions are wrong, then obviously the models and what follows can be wrong as well.”

Aha! Well, guess what Dr. Wilmott, us little ole Populists in the peanut gallery have been digging around in those mathematical models and wondering how in God's name they were not flagged as flawed by the financial mathematics community with all of you finance geeks screaming holy bloody murder as loud as possible? Get political math dude(s/ttes)...for frankly your equations are!

(EP posts on Gaussian Copulas here, here and here.)

Wilmott now has a blog, (click here). This is pretty cool. He's created an online space just for the quants (the quantitative financial mathematics community) and this can only be good juju since high finance is becoming much more reliant on advanced mathematical models as well as software engineering.

I would claim the issue isn't that people use too much math, instead people are using too much bad math. Does it take common sense? Well, yeah, I guess, but I would suggest is takes more than that. It takes mathematical competence to realize you're pumping in numbers into a flawed model which produce caca results. Sorry, but if a couple of geeks from outside the field can see mathematical assumptions that are incorrect in a couple of hours, where are you Quantitative Finance, Mathematical Finance, Structured Finance Academic community?

What's that engineering saying, Garbage in, garbage out?

Good news is you have a head Quant piping up and this is key. Seemingly the current attitude for regulatory bodies, many public policy folk is to ignore these black box mathematical models since the mathematics is too heavy. Folks, one can lie with anything, including the language of advanced mathematics.

Subject Meta: 

Forum Categories: