Emanuel Derman on Theories, Models, and Science
EconTalk
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Financial Models Unmasked
This chapter explores the intricacies of various financial models such as the efficient market hypothesis, CAPM, and the Black-Scholes model, while drawing historical parallels to economists like Irving Fisher. It critiques the limitations of these models in capturing the complexities of real-world financial markets and discusses the impact of psychological factors on market behavior. Additionally, the chapter emphasizes the subjective nature of value and risk assessment in finance, contrasting economic principles with mathematical modeling.
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