Who still wants to pay for Professional vanity?

My esteemed colleague, Bala Desphande (at Ontonix USA), delivers…as usual! If you want to read the full article here is the link: Risk of using Models in Risk Management – Part 1

I am still amazed how many people, in senior positions within major institutions, still argue for a belief system so dangerously flawed. They are fixated with the ability to predict the future and not a crystal ball in sight!!!

Conventional risk management, of the variety used by the likes of Lehman, involves calculating the probability of the maximum loss a given portfolio can experience over a specified time horizon. Let us unpack this statement for what its worth:


1. We first need to specify a time horizon – fairly simple,

2. We need to compute the return of this portfolio over this time period – any financial website can feed a spreadsheet to do this,

3. Then we need to state the probability that the return (or loss) will be below (or above) a certain value.

Hmm 3. gives me a problem! How much faith should any right-minded person have in a vision of our future based upon an incomplete picture of our immediate past, some mathematical theory and a model to satisfy the belief system. P-l-l-l-ease.

Benoit Mandelbrot: A fitting tribute from “Edge”

via Edge 330.

“Clouds are not spheres, mountains are not cones, coastlines are not circles,
and bark is not smooth, nor does lightning travel in a straight line.”

1924 — 2010

Long Beach, CA, February, 2010

To remember and to honor Benoit Mandelbrot,Edgeis pleased to present several pieces:

A remembrance on behalf of the Edge communityby Dimitar Sasselov;

Response to the 2005 EdgeQuestion,“What Do You Believe Is True Even Though You Cannot Prove It?”

“A Theory of Roughness: A Talk with Benoit Mandelbrot”, anEdge feature which previously ran on December 20, 2004

Response to theEdge-Serpentine Gallery collaboration“Formulae For The 21St Century: What Is Your Formula? Your Equation? Your Algorithm?”

Photograph: Budapest, 2003. “Benoit’s Dangerous Life”: A report on the photograph by George Dyson

“The Father of Long Tails”, a 2008 interview conducted in Paris by the Swiss art curator and Edgecollaborator Hans Ulrich Obrist, currently the Curator of the Serpentine Gallery in London.

Photograph: With John Brockman, Cambridge, Massachusetts, December 29, 2010

BENOIT MANDELBROT, who died on October 14th, was Sterling Professor of Mathematical Sciences at Yale University and IBM Fellow Emeritus (Physics) at the IBM T.J. Watson Research Center. His books includeThe Fractal Geometry of Nature; Fractals and Scaling in Finance; and (with Richard L. Hudson)The (mis)Behavior of Markets.

Benoit Mandelbrot’s Edge Bio Page Read more of this post