The Financial Modelers' Manifesto was a proposal for more responsibility in
risk management
Risk management is the identification, evaluation, and prioritization of risks, followed by the minimization, monitoring, and control of the impact or probability of those risks occurring. Risks can come from various sources (i.e, Threat (sec ...
and
quantitative finance
Mathematical finance, also known as quantitative finance and financial mathematics, is a field of applied mathematics, concerned with mathematical modeling in the financial field.
In general, there exist two separate branches of finance that requ ...
Emanuel Derman
Emanuel Derman (born 1945) is a South African-born academic, businessman and writer. He is best known as a quantitative analyst, and author of the book ''My Life as a Quant: Reflections on Physics and Finance''.
He is a co-author of Black–D ...
and
Paul Wilmott
Paul Wilmott (born 8 November 1959) is an English people, English researcher, consultant and lecturer in quantitative finance.Hippocratic Oath. The structure of the Financial Modelers' Manifesto mirrors that of ''
The Communist Manifesto
''The Communist Manifesto'' (), originally the ''Manifesto of the Communist Party'' (), is a political pamphlet written by Karl Marx and Friedrich Engels, commissioned by the Communist League and originally published in London in 1848. The ...
'' of 1848.
The Manifesto and Oath were written in response to the
2008 financial crisis
The 2008 financial crisis, also known as the global financial crisis (GFC), was a major worldwide financial crisis centered in the United States. The causes of the 2008 crisis included excessive speculation on housing values by both homeowners ...
with the collapse of
subprime mortgage
In finance, subprime lending (also referred to as near-prime, subpar, non-prime, and second-chance lending) is the provision of loans to people in the United States who may have difficulty maintaining the repayment schedule. Historically, subpr ...
s. A shortened version was published in
Business Week
''Bloomberg Businessweek'', previously known as ''BusinessWeek'' (and before that ''Business Week'' and ''The Business Week''), is an American monthly business magazine published 12 times a year. The magazine debuted in New York City in Septembe ...
in December 2008 with the complete version appearing shortly afterwards; the full text is available he
Note that both authors had written extensively about the risks related to financial modeling, financial models for several years before the crisis; for example:
Emanuel Derman in 1996:
:"There are always implicit assumptions behind a model and its solution method. But human beings have limited foresight and great imagination, so that, inevitably, a model will be used in ways its creator never intended. This is especially true in trading environments… but it’s also a matter of principle: you just cannot foresee everything. So, even a “correct” model, “correctly” solved, can lead to problems. The more complex the model, the greater this possibility."
Paul Wilmott in 2000:''The Use, Misuse and Abuse of Mathematics in Finance'' /ref>
:"Unfortunately, as the mathematics of finance reaches higher levels so the level of common sense seems to drop. There have been some well publicised cases of large losses sustained by companies because of their lack of understanding of financial instruments…. It is clear that a major rethink is desperately required if the world is to avoid a mathematician-led market meltdown."
See also
*
*
*
*
Physics envy
The term physics envy is used to criticize modern writing and research of academics working in areas such as " softer sciences", philosophy, liberal arts, business administration education, humanities, and social sciences. The term argues that wr ...
*
Hippocratic Oath for scientists
A Hippocratic Oath for scientists is an oath similar to the Hippocratic Oath for medical professionals, adapted for scientists. Multiple varieties of such an oath have been proposed. Joseph Rotblat has suggested that an oath would help make new s ...