reading http://preposterousuniverse.com/grnotes/grtinypdf.pdf
The critics of QF, including taleb, fail to appreciate that QF is a means, not an ends. Quants use formulas as a starting point because guessing the value of a derivative would be impractical versus formula based on some obvious assumptions, especially when thousands of derivatives need to be priced in bulk. The formula upon satisfying these assumptions does an adequate job in the areas in between the extreme values. Imagine trying to price an IBM option 3 years into the future? how would you even know where to begin? Is it $5, 10, 200? This is a huge potential margin for error, so a formula will give a value that is at least reasonable and further adjustments can be made.
The critics of QF, including taleb, fail to appreciate that QF is a means, not an ends. Quants use formulas as a starting point because guessing the value of a derivative would be impractical versus formula based on some obvious assumptions, especially when thousands of derivatives need to be priced in bulk. The formula upon satisfying these assumptions does an adequate job in the areas in between the extreme values. Imagine trying to price an IBM option 3 years into the future? how would you even know where to begin? Is it $5, 10, 200? This is a huge potential margin for error, so a formula will give a value that is at least reasonable and further adjustments can be made.
