I've read most of the articles you've referenced, as well as a number of others, and I've changed my mind, somewhat, on this subject. I think that there will be an even brighter future for financial engineering coming out of this crisis, because the financial world has become so complex that it can no longer survive without sophisticated derivatives. However, quantifying "risk"--especially compounded & counterparty risk--will move to the forefront, as banks & govt regulators attempt to stem "systemic risk". A cynic would say that the future is very bright for people who can arrange for derivatives to reward private enterprise & stick taxpayers with the bill if everything blows up. Whether intentionally or unintentionally, the "quants" seem to have done an outstanding job of arranging that this time around. George Soros made his fortune in betting against governments' willingness/ability to control themselves, as did Keynes before him. So long as there are more intelligent people outside of government than inside, the outsiders will win in the game of wits. Taleb is probably wrong in thinking that the quants inappropriately used Gaussian models instead of more fat-tailed models. I suspect that the best quants knew exactly what they were doing, and were rewarded handsomely for "tail-stuffing": moving all the risk into the long tails of the probability distributions. There's a saying on Wall Street: if some financial scheme blows up (i.e., an event in the long tail happens), IBG, UBG, WABG! (I be gone; you be gone; we all be gone!) At 03:35 PM 4/25/2009, Ray Tayek wrote:

http://news.slashdot.org/article.pl?sid=09/04/25/1858223

An anonymous reader writes "<http://en.wikipedia.org/wiki/Nassim_Nicholas_Taleb>Nassim Nicholas Taleb, a famous '<http://en.wikipedia.org/wiki/Quantitative_analyst>Quant,' has long been a strong critic of the use of mathematics and statistics in the financial markets. He has been very vocal in his books <http://en.wikipedia.org/wiki/The_Black_Swan_%28Taleb_book%29>The Black Swan and <http://en.wikipedia.org/wiki/Fooled_by_randomness>Fooled by Randomness. In <http://www.edge.org/3rd_culture/taleb08/taleb08_index.html>his article on edge.org, he says 'My outrage is aimed at the scientist-charlatan putting society at risk using statistical methods. This is similar to iatrogenics, the study of the doctor putting the patient at risk.' After the recent financial crisis, wired.com ran an article titled 'Recipe for Disaster: The Formula That Killed Wall Street' in which the quant David Li and his <http://en.wikipedia.org/wiki/Gaussian_copula#Gaussian_copula>Gaussian Copula were crucified ­ we <http://news.slashdot.org/article.pl?sid=09/03/03/036223&tid=98>discussed it at the time. Now, I've recently been admitted to a graduate program of good repute in Computational & Applied Mathematics. There is a wide range of subjects in which you can pursue your PhD, one of them being Financial Mathematics. I had a passing interest in it for quite some time. In the current scenario, how advisable it is to pursue a PhD in this topic? What would my options be five years down the line? Will the so-called 'quants' still be wanted by the banks and other financial institutions, or will they turn to more 'non-math' approaches? Would I be better off specializing in less volatile areas of Applied Mathematics? In short, what is the future of Financial Mathematics in light of the current financial crisis?" ...

--- vice-chair http://ocjug.org/