Lecturing Birds on Flying, by Pablo Triana, J Wiley, 2009
A deeply unsettling insider account of how bogus mathematics overtook finance and was a key contributor to the financial collapse of 2008-2009 and also the 25% losses Wall Street suffered in the crash of 1987. Pablo Triana, like his fellow iconoclastic options trader Nassim Taleb who wrote the foreword, seeks to reform financial markets by dumping most of the mathematical models and the academic "quants" who invaded Wall Street since the 1980s.
With deep insight, Triana deconstructs the "pillars" of mathematical finance: the capital asset pricing model, the Black Scholes Merton options pricing model, dynamic hedging, value at risk and many other foundational assumptions about "efficient markets" equilibrium, normal distributions that comprise the kit-bag of financial economics taught in elite business schools.
Like Nassim Taleb, celebrated author of The Black Swan (2007), Triana is calling for major surgical reform of such business schools' curricula. Like me and my colleagues Peter Nobel, Ralph Abraham, Robert Nadeau and other mathematicians and scientists, Triana and Taleb are calling for the de-linking of the Bank of Sweden Prize from the real Nobels.
An important addition to our deeper understanding of how finance must be reformed.
-- Hazel Henderson