Via Derman :

If You Use a Model, You Are Short Volatility

All models are analogies, and being analogies, they are limited in their scope. In physics you can describe ice, water and steam, and the phase transitions between them, with one unified theory, amazingly, and hence you can handle the extremes of freezing and boiling.

In finance or economics we have nothing like that. Even beautiful Black-Scholes-Merton ignores volatility variations, illiquidity, panic, government regulations on shorting, to name just a few things that lie outside it.

Therefore, when the world changes dramatically, every single model you can think of is likely to fail.  I would like the following principle to be engraved on the foreheads of all financial and economic model users: All models are short volatility. When volatility changes a lot, the model is going to fail.