Wall Street's Shadow Market
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Channel: CBS
Views: 151,600
Rating: 4.7821784 out of 5
Keywords: steve, kroft, wall, street, financial, economic, crisis
Id: 0Y9A0C45KZI
Channel Id: undefined
Length: 12min 3sec (723 seconds)
Published: Sun Oct 05 2008
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Why did the math guys get everything so wrong?
Answer: Because they used and still use the "normal distribution" for modeling financial instruments. The normal distribution implies that all events are independent of each other. However, in a crisis people tend to herd and independence flies out the window. So that one in 200 year event is more like a one in 20 year event.
The math guys should be using the "power law distribution." This is a feedback loop process.
(3) The case against Lehman Brothers - YouTube https://www.youtube.com/watch?v=3sm-XGVca3c
Credit Default Swaps - YouTube https://www.youtube.com/watch?v=bHXuUx0vT0Q
The Mortgage Meltdown - YouTube https://www.youtube.com/watch?v=iUuROWEMjm0