'The formula that killed Wall Street': The Gaussian copula and modelling practices in investment banking

Social Studies of Science

Volumn 44, Issue 3, 2014, Pages 393-417

  MacKenzie, Donald ^a   Spears, Taylor ^a  

^a UNIVERSITY OF EDINBURGH   (United Kingdom)

Author keywords

finance; financial modelling; Gaussian copula; investment banking; performativity

Indexed keywords

ARTICLE; ATTITUDE; ECONOMIC RECESSION; FINANCIAL MANAGEMENT; HISTORY; HUMAN; INVESTMENT; NORMAL DISTRIBUTION; ORGANIZATION AND MANAGEMENT; THEORETICAL MODEL;

ATTITUDE; ECONOMIC RECESSION; FINANCIAL MANAGEMENT; HISTORY, 20TH CENTURY; HISTORY, 21ST CENTURY; HUMANS; INVESTMENTS; MODELS, THEORETICAL; NORMAL DISTRIBUTION;

EID: 84901064803     PISSN: 03063127     EISSN: 14603659     Source Type: Journal    
DOI: 10.1177/0306312713517157     Document Type: Article

References (63)

1. Andersen L,Sidenius J,Basu S.All your hedges in one basket.Risk. 2003;16 (11): 67-72.
2. Barnes B,Bloor D,Henry JScientific Knowledge: A Sociological Analysis. Chicago, IL: Chicago University Press; 1996:.
3. Baxter M,Rennie AFinancial Calculus: An Introduction to Derivative Pricing. Cambridge: Cambridge University Press; 1996:.
4. BergmanS (2001) CDO Evaluator Applies Correlation and Monte Carlo Simulation to Determine Portfolio Quality. New York: Standard & Poor's. Available at: http://www2.standardandpoors.com (accessed 5 May 2006).
5. Beunza D,Stark D.Tools of the trade: The socio-technology of arbitrage in a Wall Street trading room.Industrial and Corporate Change. 2004;13 (2): 369-400.
6. Black F,Scholes M.The pricing of options and corporate liabilities.Journal of Political Economy. 1973;81 (3): 637-654.
7. Boumans MModels as Mediators: Perspectives on Natural and Social Change. Morgan MSMorrison M, ed. Cambridge: Cambridge University Press; 1999:66-96.
8. Breslau D,Yonay Y.Beyond metaphor: Mathematical models in economics as empirical research.Science in Context. 1999;12 (2): 317-332.
9. The Laws of the Markets. Callon M, ed. Oxford: Blackwell; 1998:.
10. Callon MDo Economists Make Markets? On the Performativity of Economics. MacKenzie DMuniesa FSiu L, ed. Princeton, NJ: Princeton University Press; 2007:311-357.
11. Cartwright NHow the Laws of Physics Lie. Oxford: Clarendon Press; 1983:.
12. Collins HGravity's Shadow: The Search for Gravitational Waves. Chicago, IL: Chicago University Press; 2004:.
13. Dowling D.Experimenting on theories.Science in Context. 1999;12 (2): 261-273.
14. Embrechts P,McNeil A,Straumann D.Correlation: Pitfalls and alternatives.Risk. 1999;12 (5): 69-71.
15. Frees EW,Carriere J,Valdez E.Annuity valuation with dependent mortality.Journal of Risk and Insurance. 1996;63 (2): 229-261.
16. Galison PImage and Logic: A Material Culture of Microphysics. Chicago, IL: Chicago University Press; 1997:.
17. Gregory J,Laurent J-P.I will survive.Risk. 2003;16 (6): 103-107.
18. Gupton GM,Finger CC,Bhatia MCreditMetrics: Technical Document. New York: J.P. Morgan; 1997:.
19. Harrison JM,Kreps DM.Martingales and arbitrage in multiperiod securities markets.Journal of Economic Theory. 1979;20 (3): 381-408.
20. Harrison JM,Pliska SR.Martingales and stochastic integrals in the theory of continuous trading.Stochastic Processes and Their Applications. 1981;11 (3): 215-260.
21. Hines RD.Financial accounting: In communicating reality, we construct reality.Accounting, Organizations and Society. 1988;13 (3): 251-261.
22. Hull JCOptions, Futures, and Other Derivatives. Upper Saddle River, NJ: Prentice Hall; 2000:.
23. Kalthoff HTowards a Cognitive Mode in Global Finance. Strulik TWillke, ed. Frankfurt; New York: Campus; 2006:156-179.
24. Keller EFMaking Sense of Life: Explaining Biological Development with Models, Metaphors, and Machines. Cambridge, MA: Harvard University Press; 2002:.
25. Knorr Cetina KEpistemic Cultures: How the Sciences Make Knowledge. Cambridge, MA: Harvard University Press; 1999:.
26. Knuuttila T,Voutilainen A.A parser as an epistemic artifact: A material view on models.Philosophy of Science. 2003;70 (5): 1484-1495.
27. Kuhn TSThe Structure of Scientific Revolutions. 1970) The Structure of Scientific Revolutions, 2nd ed.Chicago, IL: Chicago University Press.Chicago, IL: Chicago University Press; 1970:.
28. Laurent J-P,Gregory J.Basket default swaps, CDOs and factor copulas.Journal of Risk. 2005;7 (4): 103-122.
29. Lépinay VACodes of Finance: Engineering Derivatives in a Global Bank. Princeton, NJ: Princeton University Press; 2011:.
30. Li DX.The valuation of basket credit derivatives.CreditMetrics Monitor. 1999;2:34-50.
31. Li DX.On default correlation: A copula function approach.Journal of Fixed Income. 2000;9 (4): 43-54.
32. MacArthur RH,Wilson EOThe Theory of Island Biogeography. Princeton, NJ: Princeton University Press; 1967:.
33. McGintyLBeinsteinEAhluwaliaRWattsM (2004) Credit Correlation: A Guide. London: J.P. Morgan. Available at: http://www.scribd.com/doc/19606722/JP-Morgan-Credit-Correlation-A-Guide (accessed 13 January 2014).
34. MacKenzie DStatistics in Britain, 1865-1930: The Social Construction of Scientific Knowledge. Edinburgh: Edinburgh University Press; 1981:.
35. MacKenzie D.An equation and its worlds: Bricolage, exemplars, disunity and performativity in financial economics.Social Studies of Science. 2003;33 (6): 831-868.
36. MacKenzie DAn Engine, Not a Camera: How Financial Models Shape Markets. Cambridge, MA: MIT Press; 2006:.
37. MacKenzie D.The credit crisis as a problem in the sociology of knowledge.American Journal of Sociology. 2011;116 (6): 1778-1841.
38. MacKenzie D.Knowledge production in financial markets: Credit default swaps, the ABX and the subprime crisis.Economy and Society. 2012;41 (3): 335-359.
39. MacKenzie D,Spears T.'A device for being able to book P&L': The organizational embedding of the Gaussian copula.Social Studies of Science. 2014;44 (3): 418-440.
40. Mehrling PFischer Black and the Revolutionary Idea of Finance. New York: Wiley; 2005:.
41. Merton RC.Theory of rational option pricing.Bell Journal of Economics and Management Science. 1973;4 (1): 141-183.
42. Merton RC.On the pricing of corporate debt: The risk structure of interest rates.Journal of Finance. 1974;29 (2): 449-470.
43. Mikes A.Risk management and calculative cultures.Management Accounting Research. 2009;20 (1): 18-40.
44. Mirowski P.Inherent vice: Minsky, Markomata, and the tendency of markets to undermine themselves.Journal of Institutional Economics. 2010;6 (4): 415-443.
45. Mol AThe Body Multiple: Ontology in Medical Practice. Durham, NC: Duke University Press; 2002:.
46. Morgan MS.Experiments versus models: New phenomena, interference, and surprise.Journal of Economic Methodology. 2005;12 (2): 317-329.
47. Morgan MSThe World in the Model: How Economists Work and Think. Cambridge: Cambridge University Press; 2012:.
48. Models as Mediators: Perspectives on Natural and Social Science. Morgan MSMorrison M, ed. Cambridge: Cambridge University Press; 1999:.
49. Muniesa F,Callon MDo Economists Make Markets? On the Performativity of Economics. MacKenzie DMuniesa FSiu L, ed. Princeton, NJ: Princeton University Press; 2007:163-189.
50. Pioneers of Financial Economics. Poitras GJovanovic F, ed. Cheltenham: Edward Elgar Publishing; 2007:.
51. Rebonato R.Interest-rate term-structure pricing models: A review.Proceedings of the Royal Society of London Series A: Mathematical, Physical and Engineering Sciences. 2004;460:667-728.
52. Rheinberger H-JToward a History of Epistemic Things: Synthesizing Proteins in the Test Tube. Stanford, CA: Stanford University Press; 1997:.
53. SalmonF (2009) Recipe for disaster: The formula that killed Wall Street. Wired, 23February. Available at: http://www.wired.com/print/techbiz/it/magazine/17-03/wp_quant (accessed 25 February 2009).
54. Schönbucher PJ.Factor models: Portfolio credit risks when defaults are correlated.Journal of Risk Finance. 2001;3 (1): 45-56.
55. Sismondo S.Models, simulations, and their objects.Science in Context. 1999;12 (2): 247-260.
56. Sismondo S.Island biogeography and the multiple domains of models.Biology and Philosophy. 2000;15:239-258.
57. Sklar A.Fonctions de répartition à n dimensions et leurs marges.Publications de l'Institut de Statistique de l'Université de Paris. 1959;8:229-231.
58. Smith CWSuccess and Survival on Wall Street: Understanding the Mind of the Market. Lanham, MD: Rowman & Littlefield; 1999:.
59. Tett G,Larsen PT.Market faith goes out the window as the 'model monkeys' lose track of reality.Financial Times. 2005;:23.
60. Vasicek O.The philosophy of credit valuation (Privately circulated typescript).Personal papers. 1984;:.
61. Vasicek OSan Francisco, CA: KMV Corporation; 1987:.
62. VasicekO (1991) Limiting Loan Loss Probability Distribution (privately circulated). San Francisco, CA: KMV Corporation. Available at: http://www.moodyskmv.com/research/whitepaper/Limiting_Loan_Loss_Probability_Distribution.pdf (accessed 5 May 2008).
63. Vasicek O.The distribution of loan portfolio value.Risk. 2002;15 (12): 160-162.