<b>A V Rajwade</b>: Mathematical models in economics

Results of such models are only as reliable as the assumptions on which the models are based

I started studying mathematical models used in finance (like “value at risk” model for measuring risk; Black Scholes model for option pricing and hedging etc) a couple of decades back. While the models were well accepted and used, as an analyst of the foreign exchange market, I often found the assumptions underlying the models to be artificial, not supported by the reality in the market. (Market participants like Nassim Taleb, author of The Black Swan and other books, are total non-believers in such models and their predictions.) When I started studying the use of mathematical models in macroeconomics, I found