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Navigating Financial Models and Market Complexity
This chapter examines the challenges of developing financial models that align with real market behavior, particularly in the context of changing interest rates. It emphasizes the importance of understanding causal relationships within complex systems and the role of empirical versus theoretical approaches in model building. Additionally, the discussion highlights the significance of starting with simple models and gradually adding complexity, while addressing the influences of volatility, uncertainty, complexity, and ambiguity in decision-making.