Rejecting model rejection

The disruption in the correlation markets in May has prompted a backlash against the use of trading models. Deutsche Bank's Stephen Blyth (below) argues that while the unquestioning acceptance of models without judgement should obviously be avoided, a wholesale rejection of quantitative models is unwise

Recent reported trading disruption in convertible bond and credit markets has reignited the debate about the use of quantitative models in financial markets. The Financial Times recently addressed the concept of 'proceduralism' – the overly mechanical application of models and procedures without sufficient reasoning ('Market faith goes out the window as the 'model monkeys' lose track of reality', May 20, 2005). Certainly, it has become fashionable to cast doubt on the usefulness or robustness of