I just finished reading a book titled "My Life as a Quant: Reflections on Physics and Finance," by Emanuel Derman (co-creater of the eponymous Black-Derman-Toy interest rate model). A nice book, recommended to anyone interested in quantitative finance.
Derman got a Ph.D. in theoretical physics, and worked in several university physics positions, before becoming a Wall Street "quant." His last chapter has a nice line, where he discusses how physics is in many ways more amenable to modeling than are economics and finance. He writes, "Trained economists have never seen a really first-class model. It's not that physics is 'better,' but rather that finance is harder."
As some of us say, because people's behaviors and preferences change, unlike physical laws, "Finance and actuarial science aren't rocket science -- they're HARDER."
- Rick
Wednesday, July 26, 2006
Monday, July 24, 2006
Gas Prices and Demand Curves
In the current issue of Business Week, there is an article ("Can't Stop Guzzling," pp. 26-29) that discusses how little our demand for gas appears to have been affected by the recent high prices. It's an interesting article, and an interesting issue: determining a demand curve for a product. Apparently this one is pretty inelastic -- but for prices up to how much per gallon?
Relevance to actuarial science: underlying auto insurance exposure should be some function of, among other things, amount driven, and how we drive. Are these being affected by changing gas prices?
- Rick
Relevance to actuarial science: underlying auto insurance exposure should be some function of, among other things, amount driven, and how we drive. Are these being affected by changing gas prices?
- Rick
Math Geeks Rule!
In case you missed it a number of moths ago, here's a link to a Business Week cover story from January 23, 2006: "Math Will Rock Your World." It describes the impact and influence that math and mathematicians are having throughout business and industry.
- Rick
- Rick
Saturday, July 22, 2006
One Impressive Economist (Actually, Two)
In today's Wall Street Journal (Sat/Sun, July 22-23), on page A10, there is an interview with Milton Friedman (and his wife, Rose). It's a nice piece that gives a flavor of his mind and their relationship -- Rose is also an economist, and they collaborated frequently.
Most of you (referring to my students) are far too young to have had any real exposure to Friedman the Economist (actually, for the most part, *I'm* too young, too, but I was conscious of the tail end of his career, and of his incredible legacy). As no doubt with certain other figures, it is probably hard for younger people to fully appreciate the stature and influence of Milton Friedman. He won the Nobel Prize in economics in 1976 -- my impression is that most economists at the time felt the award had been delayed, relative to deservedness -- and was always somewhat controversial. His two most famous books -- both eminently readable -- are probably "Capitalism and Freedon" and "Free to Choose."
Milton Friedman is now 94 years old, and he and his wife are in their 68th year of marriage (oh my GOODNESS!).
And why even mention this WSJ interview in an actuarial science forum? In part, of course, because economics is foundational to what we do, and the context in which we do it. But also because of a wonderful anecdote, mentioned in the Friedmans' memoir, "Two Lucky People." There was one profession that Milton Friedman, that great intellect, considered entering but decided against after taking an exam. You've got it: actuarial science!
- Rick
Most of you (referring to my students) are far too young to have had any real exposure to Friedman the Economist (actually, for the most part, *I'm* too young, too, but I was conscious of the tail end of his career, and of his incredible legacy). As no doubt with certain other figures, it is probably hard for younger people to fully appreciate the stature and influence of Milton Friedman. He won the Nobel Prize in economics in 1976 -- my impression is that most economists at the time felt the award had been delayed, relative to deservedness -- and was always somewhat controversial. His two most famous books -- both eminently readable -- are probably "Capitalism and Freedon" and "Free to Choose."
Milton Friedman is now 94 years old, and he and his wife are in their 68th year of marriage (oh my GOODNESS!).
And why even mention this WSJ interview in an actuarial science forum? In part, of course, because economics is foundational to what we do, and the context in which we do it. But also because of a wonderful anecdote, mentioned in the Friedmans' memoir, "Two Lucky People." There was one profession that Milton Friedman, that great intellect, considered entering but decided against after taking an exam. You've got it: actuarial science!
- Rick
Hurricane Season
One of the most significant -- and certainly one of the more visible -- risks faced by a property-casualty insurance company is catastrophe risk. As we are heading into the core of hurricane season, it's not surprising that meteorological prognostications and estimations of hurricane preparedness are on everyone's radar screens.
A press release regarding a New Hurricane Readiness Index can be found on the Insurance Information Institute website, at
http://www.iii.org/media/updates/press.757472/
This survey and evaluation, sponsored by a number of major P/C insurers, concludes that homeowners still have a ways to go with respect to preparedness for future hurricanes.
Other noteworthy insurance-related hurricane-season writings in the last couple of weeks include a page 1 Wall Street Journal article about the current demand-supply crunch for catastrophe insurance ("As Hurricane Season Begins, Disaster Insurance Runs Short," Monday, July 10), and an article in Barron's about the possible favorable results for some insurers if the hurricane season turns out to be not-so-bad ("Fair Weather's Friends," also July 10).
- Rick
A press release regarding a New Hurricane Readiness Index can be found on the Insurance Information Institute website, at
http://www.iii.org/media/updates/press.757472/
This survey and evaluation, sponsored by a number of major P/C insurers, concludes that homeowners still have a ways to go with respect to preparedness for future hurricanes.
Other noteworthy insurance-related hurricane-season writings in the last couple of weeks include a page 1 Wall Street Journal article about the current demand-supply crunch for catastrophe insurance ("As Hurricane Season Begins, Disaster Insurance Runs Short," Monday, July 10), and an article in Barron's about the possible favorable results for some insurers if the hurricane season turns out to be not-so-bad ("Fair Weather's Friends," also July 10).
- Rick
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