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Emanuel Derman's Blog

Emanuel Derman's Recent Papers at SSRN.

REVISION: The Illusions of Dynamic Replication

July 3, 2011 Comments (0)

While modern financial theory holds that options values are derived by dynamic replication, they can be correctly valued far more simply by long familiar static and actuarial arguments that combine stochastic price evolution with the no-arbitrage relation between cash and forward contracts.

REVISION: Metaphors, Models & Theories

July 3, 2011 Comments (0)

Theories deal with the world on its own terms, absolutely. Models are metaphors, relative descriptions of the object of their attention that compare it to something similar already better understood via theories. Models are reductions in dimensionality that always simplify and sweep dirt under the rug. Theories tell you what something is. Models tell you merely what something is partially like.

REVISION: Metaphors, Models & Theories

July 3, 2011 Comments (0)

Theories deal with the world on its own terms, absolutely. Models are metaphors, relative descriptions of the object of their attention that compare it to something similar already better understood via theories. Models are reductions in dimensionality that always
simplify and sweep dirt under the rug. Theories tell you what something is. Models tell you merely what something is partially like.