From: the.wise.one@abel.co.uk   
      
   Super Models -- derivative algorithms   
      
      
   Fashion models and financial models are similar.  They bear a similar   
   relationship to the everyday world.  Like supermodels, financial models   
   are idealized representations of the real world, they are not real, they   
   don't quite work in the way that the real world works.  There is   
   celebrity in both worlds.  In the end, there is the same inevitable   
   disappointment.   
      
        There is an apocryphal story about a bar in new York, a hangout for   
   models.  It is about a cruel joke played on a young, 20-something quant   
   employed in an investment bank.  The traders suspected that the geeky   
   young man had never had a date.  They took him to the bar and told him   
   that it was frequented by his type of women -- modellers.  The young man   
   was dubious, sensing that he was being set up, but he desperately wanted   
   to bond with the traders to reduce the constant ragging that he endured.   
      
        They took their places at the bar and fuelled themselves to an   
   appropriate level of intoxication.  'You see that girl,' a trader nudged   
   the quant.  The quant focused his glasses on a tall woman sitting at a   
   table.  'She's giving you the eye,' the trader continued.  'Go over,' he   
   commanded.  'Talk to her.'   
      
        The quant sensed danger; this was not smart.  The other traders now   
   joined in, urging him to make a move.  Left without choice, he pushed   
   back his chair and began to walk in the general direction of the woman.   
     The traders were taking bets on the result of the encounter: the   
   betting favoured the quant being slapped and told to 'F*** off'.   
      
        The quant made his way to the table. 'Can I join you?' he asked.   
   The woman scrutinized her suitor.  He did not look like a sexual   
   deviant.  She nodded.   
      
        The quant sat down, thinking of a way to start a conversation.  He   
   remembered they were modellers.  'I'm working on a new model that adapts   
   the Black-Scholes framework to incorporate mean reversion in   
   commodities,' he blurted out.  The woman looked at him strangely.  'You   
   know,' she drawled.  'I did my PhD on a similar problem.  That's before   
   I realized that there's more money in strutting up and down catwalks in   
   your underwear.'  She smiled at the young man.  'Where are you from?'   
   The quant smiled back broadly.  Models are sometimes full of surprises.   
      
        The worlds of derivatives and models frequently collide.  This   
   chapter is the story of the intertwined history of derivatives and their   
   mathematical models, their successes and their failures...   
      
      
   from:   
   "Traders, Guns & Money: Knowns and unknowns in the dazzling world of   
   derivatives"   
   by Satyajit Das   
   FT Prentice Hall, 2006   
   Chapter 6: Super Models -- derivative algorithms   
   pages 181-182   
      
   --- SoupGate-Win32 v1.05   
    * Origin: you cannot sedate... all the things you hate (1:229/2)