The High-tech World of Finance

Posted on 8 Oct 2008 at 16:29

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So can you categorise how accurate, and therefore how useful, economic models really are? "Not formally," Spencer admits. "There are some obvious benchmarks, though. Are models better than a random walk? Are they better than statistical black box models? The answer in both cases is yes. The reason they work better is because they are tools not just for capturing well-known regularities (for example, between world trade and British export) but they allow you to incorporate other information such as survey data that black boxes don't pick up."

In the 1960s and 1970s, computer errors that resulted in pensioners receiving million pound gas bills were a staple of tabloid reporting. Today it would be nice to think that financial computing has come of age and that the systems that manage our finances make our lives easier and our money more secure. In the main that's correct, but if you find finances stressful it might pay not to give too much thought to the algorithmic trading systems that might help push your HBOS shares even lower, or the Treasury's economic model that Alistair Darling might use to decide whether or not to increase fuel duty.

Author: Mike Bedford

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