Just read some articles provided by K and got some insight on relevance of statistics (or lack of proper use) in our world today. I have seen, that some risk managers in do not understand the underlying risks and assumptions they are facing. But just blindly following a procedure set by someone before. And so, some words of wisdom below ...
"To paraphrase from Nobel laureate economist Paul Krugman in describing the economic meltdown, “… (modelers) went astray because (modelers), as a group, mistook beauty, clad in impressive-looking mathematics, for truth.” Models are, at best, ephemeral hypotheses about truth; therefore, sound scientific methods should continually be used to test if hypotheses (models) still reflect the truth".
One story of a model written by David X Li that allowed the finance industry to price Credit Default Swaps and collateralized debt obligations, but the assumptions for that product were not improved or considered for scenario analysis... and Taleb sums it up...
"People got very excited about the Gaussian copula because of its mathematical elegance, but the thing never worked," Nissam Taleb says. "Co-association between securities is not measurable using correlation," because past history can never prepare you for that one day when everything goes south. "Anything that relies on correlation is charlatanism."
So finally what Dr David X Li said sparks off some interest for me in applied mathematics...
"Finance might be the most successful area to use mathematics. The mathematics used in finance ranges from basic mathematics, such as numerical analysis, calculus, and statistics to more advanced ones, stochastic processes and stochastic differential equations, non-linear optimization etc. The areas we use the most in practice are numerical analysis and statistics.
Many practitioners go back to school to learn more mathematics after a few years working in industry. I like the saying by Professor Elias Shiu at the University of Iowa "Learning Mathematics is like rowing, if you don’t push forward you’d be pushed backward". Just keep rowing!
One famous applied mathematician once said, "Mathematics in every one of its applied areas is a good servant, but a bad master". At the end we are to solve practical problems, not a mathematical game or theorem."
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