It’d be like finding out Hitler’s Mom lived next door … Can you imagine?
An unrelated factoid I stumbled across this weekend while doing some research on something entirely different. I call it “the Miracle that is the Internet”, if you can focus on one subject while searching, it’s a miracle.
With all of the debris and suffering of the financial system, with Wall Street demanding bonuses for shoddy work, and the hoopla of the media desperately attempting to assign blame, have you ever heard of David X. Li?
I figured as much.
The model Mr. Li devised helped estimate what return investors in certain credit derivatives should demand, how much they have at risk and what strategies they should employ to minimize that risk. Big investors started using the model to make trades that entailed giant bets with little or none of their money tied up. Now, hundreds of billions of dollars ride on variations of the model every day.
“David Li deserves recognition,” says Darrell Duffie, a Stanford University professor who consults for banks. He “brought that innovation into the markets [and] it has facilitated dramatic growth of the credit-derivatives markets.”
Wall Street took Mr. Li’s work (the Gaussian Copula) as gospel, it allowed them to value and bundle many kinds of derivatives, how to charge for the risk, and enabled the rating system under which they were sold.
Without his formula none of this would have happened.
A hundred years from now will the high school textbooks still list Genghis Khan, Adolf Hitler, and David Li – and will they be in that order?
Recently a review of the work might have found a teensy little error … he may have to return the Nobel prize, but he’ll still have the Edwin Teller Award for Money Fission.
Here, SINGLEBARBED is banking on the assumption that all outdoorsmen and anglers understand fission. They should also know that the term “derivatives,” is only an upscale term for Pork belly futures – a staple of the Chicago Board of Trade for over a century (frozen pork bellies are where your bacon comes from. Now do you understand the important outdoor tradition involved here ?) but which name would ill serve the empty paper pushing schemes of Wall St. In deriving his formulas therefore, Mr. Li had 150 years of institutionalized gambling to work from, and as the results have been somewhat less than Einsteinian, he won’t be seeing a Nobel anytime soon.