Given the tautologous statement "you cannot predict the future", I can either predict tomorrow's weather by flipping a coin or looking at weather satellite data. Reasonable people would expect that one would be right more often with the later approach than just flipping coins (although some would argue that you are better off flipping the coin instead of relying on the weather man, but you get the point). Quant models are analogous to satellite data in weather prediction - more likely to predict the future but still fallible. This fallibility was lost sight off and everyone followed the quant models like lemmings. In this mad sprint, the quants played a role in overselling the quant approach. Now they have a role ito play in resurrecting the models' reputation.
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For now, Wilmott will go about the hard work of retraining his merry band of quant soldiers, hoping his attempts at remedial education can help minimize the odds of a future derivatives-fueled melt-down. Waiting for traffic in the shadow of St. Paul's Cathedral, having walked the three miles from Grosvenor Square, Wilmott realizes he's late for the CQF class. "My God, I'm lecturing in 10 minutes!" For investors who hope to be protected from these "financial weapons of mass destruction," it's not a moment too soon.
© 2009
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