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Your characterization of "financial engineering" practitioners, and your
understanding of their practise is far off the mark.
I've worked in a financial engineering firm that has served many of the big
investment banks, pension funds and insurers. Many client-facing financial
engineers are MBA's, and wouldn't consider themselves to be scientists. The
more research oriented financial engineers are often physics Phd's, or
similar disciplines. There were actually no statisticians on the staff. The
people in the field aren't the idiots you might think they are.
Managing a multi-billion dollar book spread over trading floors in different
time zones, with thousands of positions (many of them synthetic) and many
dependencies is the big headache. Many models are simplified, e.g. VaR,
RiskMetrics because it takes enormous computational power to deal with
stress testing and MCS. Daily reports using an elaborate model are no good
if they take a week to compute. Something like computational weather
forecasting.
----- Original Message -----
From: "palsanand" <palsanand@xxxxxxxxx>
To: <amibroker@xxxxxxxxxxxxxxx>
Sent: Saturday, December 13, 2003 12:04 AM
Subject: [amibroker] Re: MaxRisk (was Optimizing Max Open Positions)
> Practitioners of "financial engineering" methods measure risks, using
> the tool of past history as an indication of the future. They call
> themselves scientists but do not show an inch of critical thinking,
> or self-doubt, which is the hallmark of science. The mere
> possibility of the distributions not being stationary makes the
> entire concept seem like a costly (perhaps very costly) mistake.
> This demarcation between science and charlatanism is apparent when we
> examine financial engineering and the applications of modern
> financial theory to risk management.
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