The formula that killed Wall Street

摘要

This article by a noted financial journalist narrates how a formula in statistics was misunderstood and misused that caused devastation of global economy. Li's work on measuring financial risk had a spurting impact and banks, investors and experts had started using the Gaussian copula formula for determining the correlation between unconnected events. For five years, the formula worked of modeling complex financial risks and the warnings against it were gone unheard. After this, in 2008 the model failed due to default made on repayments by many that availed home loans. The Gaussian copula formula will be remembered as instrumental in causing irrecoverable damage to global economy, (no refs.)