Re: OT: For those who have been laid off

Ray Victory wrote:
Usually we are asked to state an opinion about the adequacy of an
entity's financial reserves for some balance *** liability. Many
methods exist for reaching such a determination; the oldest ones still
in widespread use go back about 80 years. Coming from a pure math
background, I can tell you that the theory involved in actuarial
modeling generally is not very sophisticated.

Do you have many friends on the inside? Every single one of the actuarial people I have ever met has made no bones about stating their proudly held opinion of "actuarial math" as being the most difficult and complex of all math.

It suits me just fine.
The current economic meltdown can be largely attributed to financial
models run amok. Few really understood derivatives pricing, but the
math sure looked fancy.

Once, after spending many minutes on the derivation of an equation, and then referring to the result a professor said something like (hardly an accurate recollection but the gist is there) "So, they (experts in the world of money and finance) used to get their numbers mainly by using their many years of experience. along with quite a bit of intuition, to come up with a best guess. Now they use this equation. Once the values of the five input variables are known it becomes a simple matter to calculate the result instead of having to guess it. The first input value can be gotten by looking up the value here, and this one here. This next one can be gleaned from the financial section of any newspaper. The forth can be derived once you look up this, this , this , and this." Then he stopped for a second until someone asked about the fifth input value, and went on "There is no real way to get that value accurately. Usually they use their many years of experience and quite a bit of intuition to come up with a best guess."

But the lack of understanding might go much deeper than just derivative pricing. McCauley (yes the same McCauley who had the balls to tell it like it is - and was - in his Classical Mechanics book when, as most authors of such books are wont to do, outlining some of the historical background to the subject) rather boldly states in the preface to his Dynamics of Markets:

"This book emphasizes what standard texts and research in economics and finance ignore: that there is as yet no evidence from the analysis of real, unmassaged market data to support the notion of Adam Smith's stabilizing Invisible Hand. There is no empirical evidence for stable equilibrium, for a stabilizing hand to provide self-regulation of unregulated markets."

and

"Our emphasis is on understanding how markets really behave, not how they hypothetically 'should' behave as predicted by completely unrealistic models".

....

Actuaries excel at devising new mathematical methods and proving their
efficacy under a given set of assumptions. Most of these techniques
are published in journals and then ignored, but a few prove very
useful and wind up in the actuarial vernacular.
....

Ok, maybe you can answer a question I've always wondered about. If 99% [figure of speech only - not intended as an actual experimental number] of the traffic accidents downtown are caused by all these "tourists" from the 'burbs coming into the core to work or play, how come the downtown residents are the ones that get the increased insurance rates?

(Never mind - I've always known the answer :) )

Dave Payne,
wuxiaoxin_a t_rogers_do t_com
.

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