Hein (fub) wrote,

  • Mood:

Math is hard, let's go shopping!

As a follow-up to my previous post about the mechanisms underlying the current financial crisis:

One of the things that was explained in the visualisation was the 'Collateralized Debt Obligation', and how those packages of mortgages were divided into three parts. Just how were those separate parts sliced up and valued? It turns out that the 'quants' (financial mathematicians) used a formula that quantified correlated risks -- that was misunderstood and (hence) mis-used.

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