Models.Behaving.Badly.: Why Confusing Illusion with Reality Can Lead to Disaster, on Wall Street and in Life

Because of their contingent nature, the values of derivative securities can vary dramatically with the price of the stock. Extreme sensitivity is always dangerous, especially so when attempts to calculate the sensitivity depend on an inaccurate model.

“I can’t figure out how things work, so I’ll make the inability to do that a principle on which to base a theory.”

consistently.

None of these models works well

If everything affects you so greatly, then nothing affects you very significantly.