Attending an in-house conference a couple of months ago, I asked one of my new colleagues from another department where he worked. I'm a "quant" he replied. I was about to offer some comfort and suggest that perhaps he was just having a bad day when I realized he was one of those PHD-wielding gents charged with calculating how much banks could expect to lose when things get a bit rough. Banks may have paid these guys a lot of money in the golden years but, as we all now know,the idea that markets could police themselves effectively proved to be a pretty expensive mistake.
A long-term critic of such risk modelling, Nassim Nicholas Taleb in "The Black Swan" highlighted the vulnerability of these assumptions in the event of high-impact, hard-to-predict and rare events.
Thom Yorke's "Black Swan" was released in 2006 and has nothing to do with the financial crisis that was to come. But the lyric certainly fits the way things turned out...
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