wattnurt t1_iqx04gh wrote
Reply to comment by yetanotheryacht in In Finance how is the value of a Derivative judged realistically? And how are Analysts suppose to use Derivatives to make fair assessments of banking solvency? by Dabbing_Squid
Related, a very influential paper from the early 2000s is partially blamed for the 2008 financial crisis:
https://en.wikipedia.org/wiki/David_X._Li#CDOs_and_Gaussian_copula
It gave "quants" (actuaries) a tool for estimating the inter-dependency between mortgages etc, but they placed undue trust in that formula, and when the housing market collapsed it tore down a lot of things around it with it, even though the formula suggested it shouldn't. It was a classic example of somebody creating a tool, and others picking it up but not really understanding it and then applying it in places where it wasn't reliable.
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