475:). While under some scenarios (such as real estate) this correlation appeared to work most of the time, the underlying problem is that the single numerical data of correlation is a poor way to summarize history, and hence is not enough to predict the future. From section 6.0 onward, the paper presents experimental results using the Gaussian copula.
322:
Li himself apparently understood the fallacy of his model, in 2005 saying "Very few people understand the essence of the model." Li also wrote that "The current copula framework gains its popularity owing to its simplicity....However, there is little theoretical justification of the current framework
341:, Vol. 9, Issue 4, pages 43–54. In section 1 through 5.3, Li describes actuarial math that sets the stage for his theory. The mathematics are from established statistical theory, actuarial models, and probability theory. In section 5.4, he uses
133:, to which Li's model has been partly credited to blame, his model has been called a "recipe for disaster" in the hands of those who did not fully understand his research and misapplied it. Widespread application of simplified
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In layman's terms, he proposes to quantify the relationship between two events "House A" defaulting and "House B" defaulting by looking at the dependence between their time-unit-default (or survival time; see
315:, "People got very excited about the Gaussian copula because of its mathematical elegance, but the thing never worked. Co-association between securities is not measurable using
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applied to CDOs published in 2000, which quickly became a tool for financial institutions to correlate associations between multiple financial
300:. This allowed for CDOs to be supposedly accurately priced for a wide range of investments that were previously too complex to price, such as
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177:, one of the country's most prestigious universities. After leaving China in 1987 at the behest of the Chinese government to study
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from financial economics....We essentially have a credit portfolio model without solid credit portfolio theory." Kai Gilkes of
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says "Li can't be blamed"; although he invented the model, it was the bankers who misinterpreted and misused it.
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Li's paper "On
Default Correlation: A Copula Function Approach" was the first appearance of the
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Li's paper is called "On
Default Correlation: A Copula Function Approach" (2000), published in
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has called him "the world’s most influential actuary", while in the aftermath of the
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in the
Statistics and Actuarial Sciences department. He is also a professor at the
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458:{\displaystyle C_{\rho }(u,v)=\Phi \left(\Phi ^{-1}(u),\Phi ^{-1}(v);\rho \right)}
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319:"; in other words, "anything that relies on correlation is charlatanism."
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788:
The
Definitive Guide to CDOs: Market, Application, Valuation and Hedging
245:'s RiskMetrics unit. By 2003 he was director and global head of credit
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to a rural village in southern China for "re-education". Li received a
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311:, the model has been seen as a "recipe for disaster". According to
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112:
70:
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763:"How a Formula Ignited Market That Burned Some Big Investors"
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during the 1960s; his family had been relocated during the
574:"Recipe for Disaster: The Formula That Killed Wall Street"
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in the
Statistics and Actuarial Science Department at the
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Li was born as Li
Xianglin and raised in a rural part of
720:"An estimating function approach to credibility theory"
215:
An estimating function approach to credibility theory"
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in the
Statistics and Actuarial Sciences department.
606:"On Default Correlation: A Copula Function Approach"
149:. David Li is currently an adjunct professor at the
345:to measure event relationships, or mathematically,
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276:David Li is currently an adjunct professor at the
678:"Was David Li the guy who 'blew up Wall Street?'"
809:
657:"Meet the man whose big idea felled Wall Street"
349:, between random economic events, expressed as:
233:Li began his career in finance in 1997 at the
878:Academic staff of the University of Waterloo
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707:. University of Waterloo. 23 February 2015.
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237:in the World Markets division. He moved to
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267:China International Capital Corporation
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282:Shanghai Advanced Institute of Finance
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485:List of University of Waterloo people
241:in 2000 where he became a partner in
19:For other people named David Li, see
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13:
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235:Canadian Imperial Bank of Commerce
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307:However, in the aftermath of the
738:Statistics and Actuarial Science
705:Statistics and Actuarial Science
533:from the original on 2009-04-25.
123:(CDOs) in the early 2000s. The
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213:in 1995 with the thesis title "
121:collateralized debt obligations
786:Meissner, Gunter, ed. (2008).
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517:Jones, Sam (April 24, 2009).
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16:Canadian quantitative analyst
171:master's degree in economics
145:may have contributed to the
7:
848:Chinese emigrants to Canada
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181:from the west, he earned a
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790:. Risk Books. p. 71.
309:2007–2008 financial crisis
261:team. In 2008 Li moved to
147:2007–2008 financial crisis
131:2007–2008 financial crisis
119:models for the pricing of
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115:who pioneered the use of
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21:David Li (disambiguation)
863:Nankai University alumni
858:JPMorgan Chase employees
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520:"Of couples and copulas"
288:CDOs and Gaussian copula
157:Early life and education
868:Université Laval alumni
768:The Wall Street Journal
624:10.3905/jfi.2000.319253
611:Journal of Fixed Income
338:Journal of Fixed Income
205:in statistics from the
843:Canadian statisticians
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278:University of Waterloo
259:quantitative analytics
253:. In 2004 he moved to
223:University of Waterloo
207:University of Waterloo
151:University of Waterloo
61:University of Waterloo
722:– via ProQuest.
604:Li, David X. (2000).
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313:Nassim Nicholas Taleb
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265:where he worked for
257:and lead the credit
109:quantitative analyst
75:Quantitative analyst
853:Citigroup employees
269:as the head of the
167:Cultural Revolution
833:Canadian actuaries
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139:financial products
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199:Actuarial Science
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117:Gaussian copula
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742:. Retrieved
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636:the original
618:(4): 43–54.
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249:research at
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28:Chinese name
317:correlation
247:derivatives
243:J.P. Morgan
100:Lǐ Xiánglín
83:David X. Li
47:David X. Li
32:family name
812:Categories
744:2018-03-21
491:References
331:Li's paper
298:securities
179:capitalism
143:securities
137:models to
632:167437822
448:ρ
428:−
424:Φ
403:−
399:Φ
390:Φ
367:ρ
302:mortgages
251:Citigroup
531:Archived
479:See also
284:(SAIF).
141:such as
26:In this
774:Alt URL
263:Beijing
113:actuary
87:Chinese
71:Actuary
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630:
229:Career
191:Quebec
97::
95:pinyin
89::
30:, the
628:S2CID
586:Wired
584:(3).
195:MMath
185:from
173:from
163:China
103:born
792:ISBN
201:and
193:, a
111:and
620:doi
304:.
209:in
203:PhD
197:in
189:in
183:MBA
91:李祥林
34:is
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37:Li
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