Mathematician who changed the history.

Probably very few people know that we are obliged to the mathematician David X Li and his well-known “Li’s formula” based on “Gaussian kopula function” for the crisis 2008 and its consequences which the world face till now.

Kopula is a multidimensional function of distribution defined on a n-dimensional single cube [0, 1] n, and that each of its marginal distribution evenly on an interval [0, 1].

David Li created a formula by means of which with very high percent of probability it’s possible to calculate the casual determined distribution of a variable in a digital row when you are modeling an investment portfolio.

In practice the formula showed a brilliant result and all big players of the equity market that had access to this formula began to worship to it as to a golden calf.

Now investment institutes ceased to be afraid of mistakes in the calculations and the rivers of securities began to join the huge monetary sea named the bonds provided with debts.

Thus the world have seen the boom and euphoria that begun in 2006.

It was invested only 270 billion dollars in bonds before emergence of the formula. And in 2006 the total amount of monetary weight that was in the market of debt bonds made 4,7 trillion dollars.

Only monetary weight invested in credit default swaps CDS increased from 920 billions to 62 trillion dollars.

It was even offered to nominate David Li to the Nobel Prize.

And here comes that wasn’t considered by Li’s formula.

Hundreds of billions dollars that were invested in the real estate start to give failure.

Because all those ordinary people which took the credit under real estate were far from Li’s formula and many of them didn't even think that it’s always necessary to pay the credits. Only in this case the formula will work and will make for their owners the inconceivable profit. All credits in the built system have to be extinguished.

The result of unaccounted function by Mr. James X Li we will feel for a long time. And till now it is not known how all this will end.
Share your thoughts

HedgeFundAleksan 

The result of unaccounted function by Mr. James X Li we will feel for a long time. And till now it is not known how all this will end. Share your thoughts

In the history of the economic and financial world there are very few formulas that have withstood the power of humans to behave like humans over the long-term. A blessing for traders.