I was thinking about the actual need for creating quantitative financial models, especially for derivative products. Consider simple calls and puts for different strikes and expiries on stocks and indices - the prices of these are determined through an online auction in the exchange. We have the Black-Scholes model to predict prices as well, but in reality, the model is actually used to plot the implied vol surface. Thus, for liquid derivatives, the prices are market-driven rather than model-driven.
Of course for exotic products, the Carr-Madan formula can help us calculate the prices from the call-put prices. These model-prices can then provide the market-maker an estimate to negotiate the talks with the buyer.
So my question is, what are the overarching needs for models in the quant finance industry? In other words, how does having sophisticated quants provide an edge to the investment banks dealing with derivatives?