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Paul Wilmott Wants To Retrain and Reform Wall Street's Quants
theodp writes "What if an aeronautics engineer couldn't reconcile his elegant design for a state-of-the-art jumbo jet with Newton's second law of motion and decided to tweak the equation to fit his design? In a way, Newsweek reports, this is what's happened in quantitative finance, which is in desperate need of reform. And 49-year-old Oxford-trained mathematician Paul Wilmott — arguably the most influential quant today — thinks he knows where to start. With his CQF program, Wilmott is out to save the quants from themselves and the rest of us from their future destruction. 'We need to get back to testing models rather than revering them,' says Wilmott. 'That's hard work, but this idea that there are these great principles governing finance and that correlations can just be plucked out of the air is totally false.'"
What a concept! Basing conclusions on experimental evidence from testing via trial and error rather than warping reality to fit your business model. That's incredible!
"I have never let my schooling interfere with my education." --Mark Twain
... getting back to the real economy? Many financial products don't add anything to the real economy at all.
You know, this is just tinkering. It's a way of passing the buck. It's a way of devolving blame. It MUST be the equations, or the software, or some geek or some technological prblem that caused the economics failures.
It wasn't. It isn't.
The reason why we have economic problems is the same old one from the beginning of time -- good old fashioned human greed.
Equations, and new software isn't going to change that. What you need to do is ensure that the people operating systems and processes are ethical and honest. It's really that simple, and also, unfortunately, that difficult.
The problem with economics is that is probably more a sociological study than a idealized science.
Economics talks of supply and demand and perfect markets.
Yet we all know the advertising and social herd behavior affect purchases much more than any real needs or demands.
Nice idea, but Wilmot seems to have forgotten the most basic law of finance---nothing matters so long as you're making lots of money. Does he really think that the Quants on Wall Street and in London care about robust models and statistical significance? No! We're talking about used car salespersons in $5,000.00 suits. The financial industry is completely amoral. The only law is the law of the jungle. You can't confuse greed with a lack of quality control.
In another time, this would have been called what it is: theocracy, rule by theory.
Oh sure, they can try to be inductive, but there is always that old "correlation doesn't imply causation" gotcha isn't there?
The real solution to this problem with the social sciences was almost addressed by the Protestant culture that founded the US -- the Laboratory of the States -- but the incorporation of the slave states in the 1700s, with the resulting Amendment from Hell, the 14th, in the 1800s killed off that option entirely when "social science" sunk its fangs into the body politc in the 1900s.
"The Union" means everyone is a slave to the theocrats posing as theoreticians.
So now we're running uncontrolled experiments on nonconsenting human subjects in the guise of "public policy" of "liberal democracy" -- tyranny of the majority limited only by a vague laundry list of selectively enforced human rights.
Seastead this.