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yellowjacket
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Joined: 27 Mar 2008
Last visit: 24 Jan 2011
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Concentration: Finance, Entrepreneurship
Schools:Kellogg Class of 2011
Posts: 358
Kudos: 54
The formula that killed Wall Street 24 Mar 2009, 13:50
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Pretty interesting article about the formula which led to mispricing of CDOs and CDSs and the guy who developed it.

Recipe for Disaster: The Formula That Killed Wall Street

The article is a month old. My apologies if someone had already posted this before and I never noticed it.

Reading this is just weird (talks about the disconnect between the managers and quants)

Quote:
They didn't know, or didn't ask. One reason was that the outputs came from "black box" computer models and were hard to subject to a commonsense smell test. Another was that the quants, who should have been more aware of the copula's weaknesses, weren't the ones making the big asset-allocation decisions. Their managers, who made the actual calls, lacked the math skills to understand what the models were doing or how they worked. They could, however, understand something as simple as a single correlation number. That was the problem.
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