Derman: Overreliance on modelling "the biggest sin"

Modelling of collateralised debt obligations had descended into "a dark secret love of inappropriate mathematical elegance" in the months leading up to the financial crisis, according to Emanuel Derman, head of risk at US investment firm Prisma Capital Partners and a professor at Columbia University in New York.

Derman made his comment during his guest address, 'Surviving dangerous models', at Risk Europe 2009 in Frankfurt today.

Derman - who is also a co-author of the 'Financial modeller's manifesto', a document arguing for grassroots reform of financial modelling - sharply criticised the over-use of models by financial services executives. He said risk executives should approach models with "hubris, not idolatry". He added: "Idolatry is the biggest sin - it is when you start to get into trouble." Risk

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