Tuesday, February 24, 2009
So you're the little mathematician who started this great big financial crisis.
One thing this shows is how its good if financial theories can be diversified across. When everybody is using the same models, of risk management especially, it's very bad if the theory turns out to be badly flawed. I think part of the problem may have been that regulation provided incentives to coordinate on risk management strategies. If everybody knew the SEC would buy certain risk measurements, then that's the one everybody would use. But it might have happened anyway.