A Model Mystery
Team Latte
Jul 27, 2005
In the aftermath of Enron and Worldcom crises a lot of industry and regulatory experts have questioned the use of models - quantitative math models - to estimate the future uncertainty in the current P & L of the firm. For example, Timothy Lucas, the director of Research at the FASB (Financial Accounting Standards Board) was quoted as saying, in connection with the revelations concerning Enron's use of mark-to-market accounting for energy trades, that it had not occurred to him as to how anyone can use models to forecast prices for 10 years and then use the same models to report profits (Norris and Eichenwald(2002)).
(Taken from Financial Risk Management by Steven Allen (2003).
  
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