Criticisms
Despite their sophisticated composition, critics claim the predictive power of most volatility forecasting models is similar to that of plain-vanilla measures, such as simple past volatility. However, other works have countered that these critiques failed to correctly implement the more complicated models.
Some practitioners and portfolio managers seem to completely ignore or dismiss volatility forecasting models. For example, Nassim Taleb famously titled one of his Journal of Portfolio Management papers We Don't Quite Know What We are Talking About When We Talk About Volatility.
In a similar note, Emanuel Derman expressed his disillusion with the enormous supply of empirical models unsupported by theory. He argues that, while "theories are attempts to uncover the hidden principles underpinning the world around us, as Albert Einstein did with his theory of relativity", we should remember that "models are metaphors -- analogies that describe one thing relative to another".
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Famous quotes containing the word criticisms:
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