I have been remiss in posting to the blog. You must think we haven't done anything since the Elton John and Billy Joel concert last July! I will do some catching up today.
Some readers of this blog may be interested in a series of posts that I published on my work blog in September about the mathematics of risk and last year's financial crisis:
What went wrong?
Risk models - some math
Risk models - more information
Mathematics and computers are wonderful, but one of the lessons of the financial crisis of 2008 is that we should be cautious about relying on mathematical or computer models that claim to predict how complex systems will behave. One might think the financial world would have learned that lesson after the fiasco of Long-Term Capital Management in 1998, but apparently not. LTCM employed "brilliant mathematicans" and had two recent winners of the Nobel Prize in economics on its board of directors. Yet it lost $4.6 billion in less than four months and required a bailout engineered by the Federal Reserve Bank of New York to prevent wider damage to the financial system. What went wrong? The world behaved in ways that their computer models did not predict.
Is there a lesson here for current discussions about climate change?
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