Summary
Investors and traders need "buy," "hold" and "sell: signals based on intrinsic value models, e.g., bond, stock, futures, options, swap, real estate, etc. models, but there is no consensus, even among expert economists, what are "fair" intrinsic value models, although a minority consensus is emerging, based on "risk-neutral pricing" models. But even "risk-neutral pricing" experiences epistemological problems regarding the measurement, modeling and analysis of empirical risk. Some classical economists contend that "the market is always right" and, therefore, that the fair value is what the market determines it to be But this assertion presumes complete and efficiently working markets. When markets are incomplete (e.g. often real estate markets lack buyers or sellers during some periods in time) or when they operate inefficiently (most of them do in some form or another), aka non-neutral persistently, there are opportunities for arbitrage, i.e., trading.
Analysis
- There is a growing demand for Financial Risk Managers (FRMs) in the international financial services, investment, asset management, pension fund and insurance industries, as opposed to the conventional Chartered Financial Analysts (CFAs) or Certified Public Accountants (CPA);
- The Global Association of Risk Professionals (GARP) administers a 3-year self-study program for the professional FRM designation;
- More sophisticated top managers (CEOs and CFOs) in the financial services industries must now have both Masters of Financial Engineering and Business Administration (e.g., merrill Lynch, Citibank, Bank of America, Union Bank of Switzerland, Bear Sterns), who can better judge the financial valuation and risk models used for the market making/trading activities of their respective firms.
