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Much has been said about the sins of the quants in their inability to model and price credit derivatives, especially Collateralized Debt Obligations (CDOs) and Mortgage Backed Securities (MBSs). Bence, it is not so much of a quant failure. Sonunda, if you have the market data (especially default correlations) credit derivatives are not all that hard to price.

The failure was really in understanding how much credit and market risks were inter-related, given that they were independently managed using totally different paradigms. I think an overhauling is called for here, not merely in modeling and pricing credit risks, also in the paradigms and practices used in managing them.

Eninde sonunda, we have to understand how the whole lifecycle of a trade is managed, and how various business units in a financial institution interact with each other bearing one common goal in mind. It is this fascination of mine with the “Büyük resim” that inspired me to write Kantitatif Geliştirme İlkeleri, to be published by Wiley Finance in 2010.



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