Fair argument, but somehow I doubt you know too much about real-world finance. Not a lot of reason to be found there.
Frankly, I think the problem here is "too new" or "too many variables". I doubt any of these managers understand Black-Scholes, yet they would sign off on using it because it's established, even though applying it also lost lots of people lots of money.
"It outperformed" seems to me to be reason enough, in fact not using it something that outperforms could be construed as "mismanagement" just as well.
I’ve been working in a hedge fund as a quant dev for more than 10 years. Before that I worked in 3 banks.
Most option traders definitely understand black scholes, but that’s not really the point, cause there are more complex models that they would use to trade without knowing the details of.
The point is that there are quants who you need to trust with the models. And they’re most likely the ones who said: “this seems to work, but we don’t really know why, so we probably shouldn’t use it”. The fact that the top dogs agree with that is a sign of maturity.
> I’ve been working in a hedge fund as a quant dev for more than 10 years. Before that I worked in 3 banks.
I guess you know too much about it, then.
> “this seems to work, but we don’t really know why, so we probably shouldn’t use it”
The same could be said of human intelligence. With that attitude, you can just throw out machine learning altogether. Most models are not interpretable. It's too many variables. That's how the world works though, there are too many variables for you to ever understand cause and effect at any broader scale. That's especially true with finance, where models have relatively little predictive power anyway. I'm surprised to hear an "appeal to reason" coming out of that corner, of all places.
Frankly, I think the problem here is "too new" or "too many variables". I doubt any of these managers understand Black-Scholes, yet they would sign off on using it because it's established, even though applying it also lost lots of people lots of money.
"It outperformed" seems to me to be reason enough, in fact not using it something that outperforms could be construed as "mismanagement" just as well.