The Formula That Killed Wall Street.

[Tengauge12]

We recently discussed the perspective that the harrowing of Wall Street was caused by over-reliance on computer models that produced a single number to characterize risk. Wired has a piece profiling David X. Li, the quant behind the formula that enabled the creation of such simple risk models.


"For five years, Li's formula, known as a Gaussian copula function, looked like an unambiguously positive breakthrough, a piece of financial technology that allowed hugely complex risks to be modeled with more ease and accuracy than ever before. With his brilliant spark of mathematical legerdemain, Li made it possible for traders to sell vast quantities of new securities, expanding financial markets to unimaginable levels. His method was adopted by everybody from bond investors and Wall Street banks to ratings agencies and regulators. ... [T]he real danger was created not because any given trader adopted it but because every trader did. In financial markets, everybody doing the same thing is the classic recipe for a bubble and inevitable bust."

Read about it... (Read comments)

 

[X Hero X]

you must be realy bored to post all those threads?

 

[Jansen]

post more slashdot links please

 

[Diamond]

There aren't going to be a lot of people that are going to understand this, nonetheless post something that makes sense, although it's a good topic to discuss. The reason wall street landed on the downward incline was basically, in simple terms, because banks were lending money to those who couldn't repay them. They would take a loan to buy their house and figure with the uprising house market their $400K house would be worth $600K, well, they were wrong. The market didn't grow, it was induced into a slow downward spiral. So, these people were just bailing out on the banks, if they have no money, they can't pay loans. If you want to read more about basic economics and how the economy, refer here: http://www.sythe.org/showthread.php?t=579756

 

[cp]

I am suspecting something similar to autoblogging in this direction... I don't see any way you can make money from posting slashdot links. What are you doing mister?!

 

[Tengauge12]

I'm not in any way trying to make money... I'm just simply posting intelligent feeds here, which can be discussed and read.