The Financial Modelers' Manifesto was a proposal for more responsibility in risk management and
quantitative finance
Mathematical finance, also known as quantitative finance and financial mathematics, is a field of applied mathematics, concerned with mathematical modeling of financial markets.
In general, there exist two separate branches of finance that require ...
Emanuel Derman
Emanuel Derman (born 1945) is a South African-born academic, businessman and writer. He is best known as a quantitative analyst, and author of the book ''My Life as a Quant: Reflections on Physics and Finance''.
He is a co-author of Black–Derm ...
and
Paul Wilmott
Paul Wilmott (born 8 November 1959) is an English researcher, consultant and lecturer in quantitative finance.Hippocratic Oath. The structure of the Financial Modelers' Manifesto mirrors that of ''
The Communist Manifesto
''The Communist Manifesto'', originally the ''Manifesto of the Communist Party'' (german: Manifest der Kommunistischen Partei), is a political pamphlet written by German philosophers Karl Marx and Friedrich Engels. Commissioned by the Commu ...
'' of 1848.
The Manifesto and Oath were written in response to the
Financial crisis of 2007–2010
Finance is the study and discipline of money, currency and capital assets. It is related to, but not synonymous with economics, the study of production, distribution, and consumption of money, assets, goods and services (the discipline of fi ...
with the collapse of
subprime mortgage
In finance, subprime lending (also referred to as near-prime, subpar, non-prime, and second-chance lending) is the provision of loans to people in the United States who may have difficulty maintaining the repayment schedule. Historically, subpri ...
s. A shortened version was published in Business Week in December 2008 with the complete version appearing shortly afterwards; the full text is available he
Note that both authors had written extensively about the risks related to financial modeling, financial models for several years before the crisis; for example:
Emanuel Derman in 1996:
:"There are always implicit assumptions behind a model and its solution method. But human beings have limited foresight and great imagination, so that, inevitably, a model will be used in ways its creator never intended. This is especially true in trading environments… but it’s also a matter of principle: you just cannot foresee everything. So, even a “correct” model, “correctly” solved, can lead to problems. The more complex the model, the greater this possibility."
Paul Wilmott in 2000:''The Use, Misuse and Abuse of Mathematics in Finance'' /ref>
:"Unfortunately, as the mathematics of finance reaches higher levels so the level of common sense seems to drop. There have been some well publicised cases of large losses sustained by companies because of their lack of understanding of financial instruments…. It is clear that a major rethink is desperately required if the world is to avoid a mathematician-led market meltdown."