http://quixoticfinance.com/modeling-101-part-3/ To protect our windmills against Don Quixote and his Knights of the Holy Black Swan Tue, 05 Aug 2014 20:37:51 +0000 hourly 1 https://wordpress.org/?v=5.3.2 http://quixoticfinance.com/modeling-101-part-3/#comment-2062 Sat, 07 Jun 2014 13:49:16 +0000 http://quixoticfinance.com/?p=263#comment-2062 […] Summary of part 2 (and preview to part 3): Quantitative financial models are not used to predict stock prices. Their main uses are in pricing financial derivatives and in risk management. In both areas, the answers given by quants are model-dependent to some degree. Thus, choosing an appropriate model and correctly specifying its parameters is important, but it’s equally important to keep in mind what the model is used for. A model may be more “correct” in some abstract philosophical sense, but it may be so impractical as to render it useless. That will be the subject of part 3. […]

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