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None of these models works well
Emanuel Derman • Models.Behaving.Badly.: Why Confusing Illusion with Reality Can Lead to Disaster, on Wall Street and in Life
“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.”
Emanuel Derman • Models.Behaving.Badly.: Why Confusing Illusion with Reality Can Lead to Disaster, on Wall Street and in Life
Perhaps the greatest “phase transition” in our thinking that such an approach could engender is the maturation in our willingness to live with relatively high levels of uncertainty in the domains of complex phenomena—and thus give up on ideas like complete “cures,” the elimination of “risk,” the design of perfect “stability,” and achieving total “s
... See moreJessica C. Flack • Worlds Hidden in Plain Sight: The Evolving Idea of Complexity at the Santa Fe Institute, 1984–2019 (Compass)
The Man from the Future: The Visionary Life of John von Neumann
More Than You Ever Wanted To Know About Volatility Swaps
Explores volatility and variance swaps, their properties, uses for trading and hedging volatility exposure, and methods for replication and valuation using options, while addressing practical challenges and implications of volatility skews.
emanuelderman.comemergent phenomena, ergodicity, radical uncertainty, and computational irreducibility.
Richard Bookstaber • The End of Theory: Financial Crises, the Failure of Economics, and the Sweep of Human Interaction
Physicists and mathematicians want to discover regularities. People say, what use is disorder. But people have to know about disorder if they are going to deal with it.
James Gleick • Chaos: Making a New Science
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.