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14 January 2009

Financial Modeler's Manifesto...

Echoing all of the recent focus on model risk at the RiskMinds event before Christmas (see earlier post), Emanuel Derman and Paul Wilmott have put together "The Financial Modeler's Manifesto" as their serious but amusing guide to how financial modeler's must conduct themselves in future.

I particularly like the self-effacing summary oath for financial model-makers everywhere:

The Modelers' Hippocratic Oath

~ I will remember that I didn't make the world, and it doesn't satisfy my equations. 

~ Though I will use models boldly to estimate value, I will not be overly impressed by mathematics.

~ I will never sacrifice reality for elegance without explaining why I have done so.

~ Nor will I give the people who use my model false comfort about its accuracy.
Instead, I will make explicit its assumptions and oversights.

~ I understand that my work may have enormous effects on society and the economy,
many of them beyond my comprehension.



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