Financial economics students, read this piece, and reflect on the types of models you've seen already in economics. Skip ahead a few weeks to some of the readings, and you'll find models that break most of the 'credo' assumptions in this well-written piece by two giants of quantitative finance.
"Whirring away at the center of the mortgage meltdown that prompted the current crisis were those theoretical constructs known as financial models. As bankers sliced and securitized mortgages, traders and investors relied on the models to calculate the bundled loans' values and risks—risks they failed to predict.
What went wrong? As modelers, we see the fantasy of perfection as the fatal flaw seducing both developers and users. The invisible worm of financial modeling is a dark love of theoretical elegance and excessive precision.
Whenever we make a mathematical model of something involving human beings, we are forcing the ugly stepsister's foot into Cinderella's pretty glass slipper. It won't fit without sawing off some essential parts. Trimmed for simplicity or beauty, models inevitably mask risk rather than expose it."
via Financial Models Must Be Clean and Simple - BusinessWeek.