Feb. 28th, 2009

thewayne: (Default)
Long article in Wired about the derivative formula that created these credit default swaps and other crap that helped melt down the economy.

There's an excellent reply to the article:
"Been in the biz for 25 years. ... First lesson: NEVER put money into a black box; if you don't understand it [the formula] completely, don't do it." Well, an awful lot of people did not understand it. Minor changes in the input caused huge changes in the risk factors, and it was roundly ignored.

And here we are.

http://www.wired.com/techbiz/it/magazine/17-03/wp_quant?currentPage=all

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