Lecturing Birds on Flying: Can Mathematical Theories Destroy the Financial Markets?

Lecturing Birds on Flying: Can Mathematical Theories Destroy the Financial Markets?

By: Pablo Triana (author), Nassim Nicholas Taleb (foreword_author)Hardback

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Description

An intriguing look at how financial models have repeatedly failed our markets, including now Leading and contrarian thinkers have been talking for years about the conflicts between theoretical and real finance. Nassim Taleb first addressed the issue in his technical treatise on options, Dynamic Hedging. Now, in Lecturing Birds on Flying, Pablo Triana moves the conversation to a narrative that anyone can follow, and explains how it is that theoretical finance can fail dramatically in the real world. The heart of the book, though, isn't about technicalities, but instead explores how widely accepted theories that are applied daily cause our world real harm. Many times, it's the quantitative models that hedge funds and investment banks use (and regulators and rating agencies embrace) that lead to market implosions. These so-called models end up offering false guidance and misplaced certainty, and sanction unsavory behavior. In fact, these models were largely responsible for the stock market crash of 1987, the LTCM crisis of 1998, the credit crisis of 2008, and many other blow-ups big and small. Pablo Triana has been writing about the limits of these types of mathematics for several years; now he reveals exactly what this means for our markets and why blind self-enslavement to quantitative dictums puts us at great peril. Pablo Triana (New York, NY, and Madrid, Spain) has successful derivatives experience at all levels: trading floor, professor, consultant, and author. He is a frequent contributor to business publications, including the Financial Times, Forbes.com, Breakingviews, and Risk magazine, among others. His prior book is Corporate Derivatives. Triana holds a master of science from New York University, Stern and an MA from American University.

About Author

Pablo Triana has successful derivatives experience at all levels: on the trading floor and as a professor, consultant, and author. He is a frequent contributor to business publications, including the Financial Times, Forbes.com, Breakingviews.com, and Risk magazine, among others. Triana is also the author of Corporate Derivatives. He holds a master of science from the Stern School of Business, New York University, and a master of arts from American University.

Contents

Foreword. Preface: An Evening at NYU, Taleb's Article, and a Credit Crisis. Mathew Gladstein's Complaisanc. ESSENTIALS. CHAPTER 1 PLAYING GOD. It's tough to model human action. Finance is not as religious as physics. Black Swans make things harder. The markets are not Normal and the past is a faulty guide. Should we care that theorists persist? CHAPTER 2 THE FINANCIAL ECONOMICS FIEFDOM. Virginity matters. When describing reality was okay. It's the incentives, stupid. Many obstacles to reform. Heeding Fischer Black's message. CHAPTER 3 QUANT INVASION. Machine learning comes to finance. It's a computational thing. Models live here, too. Quant punting. Interesting enough for a movie. CRITIQUE. CHAPTER 4 COPULATED NIGHTMARES. Abrupt reform, if not so much prison. Modeling death. The 2005 pre-warning. Rating us into hell. A disapproving grin. CHAPTER 5 BLAH VaR BLAH. Insalubrious charlatanism. Tracking a true culprit. Credit truths. A long rap sheet of evidence. The police are in on it. CHAPTER 6 BLUE IS NOT GREEN. Lehman did die. Anything is possible. Buffett versus the Black Swan. Stubbornly holding the theoretical fort. An end to indoctrination. CHAPTER 7 THE BLACK-SCHOLES CONUNDRUM. Once upon a time at MIT. Frowning, not smiling. How Black was that Monday. A devastating KO. The Taleb & Haug critique. CONCLUSIONS. CHAPTER 8 BLACK SWAN DECEIT? The tired perfect storm alibi may be a facade. Indoctrinating clients and investors. The unseemly marketers of academic dogma. Do as I say, not as I do. Glorifying complexity. CHAPTER 9 AN UNHEALTHY YEARNING FOR PRECISION. Dangerous voluntary enslavement. Let freedom ring. Normality can kill you. A VIXing issue. Protect those derivatives. CHAPTER 10 WE NEED FAT TONY. FINALE SHOULD THE NOBEL PRIZE IN ECONOMICS BE ELIMINATED? Notes. Acknowledgments. About the Author. Index.

Product Details

  • ISBN13: 9780470406755
  • Format: Hardback
  • Number Of Pages: 400
  • ID: 9780470406755
  • weight: 628
  • ISBN10: 0470406755

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