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| '''David X. Li''' (born in China in the 1960s as {{zh|s=李祥林|p=Lǐ Xiánglín}}<ref name=ft/>) is a [[quantitative analyst]] and a [[actuary|qualified actuary]] who in the early 2000s pioneered the use of ''[[Gaussian copula]]'' models for the pricing of [[collateralized debt obligation]]s (CDOs).<ref name="wired">{{cite journal |work=Wired Magazine |date=March 2009 |volume=17 |issue=3 |url=http://www.wired.com/techbiz/it/magazine/17-03/wp_quant |title=Recipe for Disaster: The Formula That Killed Wall Street |first=Felix |last=Salmon |publisher=[[Wired (magazine)]]}}</ref><ref name="paper">{{cite journal |doi=10.3905/jfi.2000.319253 |first=David X. |last=Li |year=2000 |url=http://www.defaultrisk.com/pp_corr_05.htm |title=On Default Correlation: A Copula Function Approach |journal=[[Journal of Fixed Income]] |volume=9 |issue=4 |pages=43–54}}</ref> The ''[[Financial Times]]'' called him "the world’s most influential actuary",<ref name="ft">{{Cite news |title=The formula that felled Wall St |url=http://www.ft.com/cms/s/2/912d85e8-2d75-11de-9eba-00144feabdc0.html |first=Sam |last=Jones |newspaper=[[Financial Times]] |date=April 24, 2009 |publisher=[[Financial Times]] |postscript=<!--None--> }}</ref> while in the aftermath of the [[global financial crisis of 2008–2009]], to which Li's model has been credited partly to blame,<ref name="ft"/><ref name="wired"/> his model has been called a "recipe for disaster".<ref name="wired"/> | | The author's name is Christy Brookins. My day occupation online psychics; [http://Jplusfn.Gaplus.kr/xe/qna/78647 gaplus.kr], is an information officer but I've currently utilized for another one. For a while I've been in Alaska but I will have to transfer in a yr or two. As a lady what she really likes is fashion and she's [http://www.familysurvivalgroup.com/easy-methods-planting-looking-backyard/ best psychic readings] been performing it for fairly a while.<br><br>Here is my webpage clairvoyance ([http://cpacs.org/index.php?document_srl=90091&mid=board_zTGg26 http://cpacs.org/index.php?document_srl=90091&mid=board_zTGg26]) |
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| ==Biography==
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| Li was born as Li Xianglin and raised in a rural part of [[China]] during the 1960s;<ref name="wired"/> his family had been relocated during the [[Cultural Revolution]] to a rural village in southern China for "re-education".<ref name=ft/> Li was talented and with hard work he received a [[Master of Economics|master's degree in economics]] from [[Nankai University]], one of the country’s most prestigious universities.<ref name=ft/> After leaving China in 1987 at the behest of the Chinese government to learn more about [[capitalism]] from the west,<ref name=ft/> he earned an [[Master of Business Administration|MBA]] from [[Laval University]] in [[Quebec]], and an [[MMath]] in [[Actuarial Science]] and [[Doctor of Philosophy|PhD]] in statistics from the [[University of Waterloo]] in [[Ontario]]<ref name="wired"/> in 1995 with thesis title ''An estimating function approach to credibility theory'' under the supervision of Harry H. Panjer.<ref>{{cite web| url = http://search.proquest.com/docview/194155644/ | title = An estimating function approach to credibility theory | first = Xianglin | last = Li | publisher = ProQuest}}</ref> At this point he changed his name to David X. Li.<ref name=ft/> His financial career began in 1997 at [[Canadian Imperial Bank of Commerce]] World Markets division.<ref name="wired"/> He eventually moved to [[New York City]] and in 2000, he was a partner in [[J.P. Morgan]]'s RiskMetrics unit.<ref>http://www.thestar.com/business/2009/03/18/meet_the_man_whose_big_idea_felled_wall_street.html</ref> By 2003 he was director and global head of credit [[Derivative (finance)|derivatives]] research at [[Citigroup]].<ref name=ft/> In 2004 he moved to [[Barclays Capital]] and headed up the credit [[Quantitative analyst|quantitative analytics]] team.<ref name="wired"/> In 2008 Li moved to [[Beijing]] where he works for [[China International Capital Corporation]] as head of the [[risk management]] department.<ref name="wired"/>
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| ==CDOs and Gaussian copula==
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| Li's paper "On Default Correlation: A Copula Function Approach"<ref name=paper/> (2000) was the first appearance of the [[Gaussian copula]] applied to CDOs, which quickly became a tool for financial institutions to correlate associations between multiple [[Security (finance)|securities]].<ref name="wired"/> This allowed for CDOs to be supposedly accurately priced for a wide range of investments that were previously too complex to price, such as [[mortgages]]. However in the aftermath of the [[Global financial crisis of 2008–2009]] the model has been seen as fundamentally flawed and a "recipe for disaster".<ref name="wired"/> According to [[Nassim Nicholas Taleb]], "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 [[correlation]]"; in other words, because history is not predictive of the future, "[a]nything that relies on correlation is charlatanism."<ref name="wired"/>
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| Li himself apparently understood the fallacy of his model, in 2005 saying "Very few people understand the essence of the model."<ref name=wsj>[http://math.bu.edu/people/murad/MarkWhitehouseSlicesofRisk.txt "Slices of Risk"], Mark Whitehouse, ''[[The Wall Street Journal]]'', September 12, 2005</ref> 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 from financial economics....We essentially have a credit portfolio model without solid credit portfolio theory."<ref>The Definitive Guide to CDOs, Edited by Gunter Meissner, pg. 71, 2008, Risk Books</ref> Kai Gilkes of [[CreditSights]] says "Li can't be blamed", although he invented the model, it was the bankers who misinterpreted and misused it.<ref name="wired"/>
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| ===Li's paper=== | |
| {{Primary sources|section|date=May 2011}}
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| Li's paper is called "On Default Correlation: A Copula Function Approach" (2000), published in ''[[Journal of Fixed Income]]'', Vol. 9, Issue 4, pages 43–54.<ref name=paper/>
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| 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.
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| In section 5.4, he uses [[Copula (statistics)#Gaussian copula|Gaussian Copula]] to measure event relationships, or mathematically, ''correlations'', between random economic events, expressed as:
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| ::<math>C_\rho(u,v) = \Phi_\rho \left(\Phi^{-1}(u), \Phi^{-1}(v) \right) </math>
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| In layman's terms, he proposes there is a relationship between 2 different but related events i.e. "House A" defaulting and "House B" defaulting are measurable using correlation. While under some scenarios (such as real estate) this correlation appeared to work most of the time, the underlying problem is that history ultimately cannot predict the future.
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| From 6.0 onward, the paper presents experimental results using the Gaussian Copula. The results are favorable to Li's proposal.
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| ==References== | |
| {{Reflist}}
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| {{Persondata <!-- Metadata: see [[Wikipedia:Persondata]]. -->
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| | NAME = Li, David X.
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| | ALTERNATIVE NAMES =
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| | SHORT DESCRIPTION = Chinese statistician
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| | DATE OF BIRTH = 1960s
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| | PLACE OF BIRTH = China
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| | DATE OF DEATH =
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| | PLACE OF DEATH =
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| }}
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| {{DEFAULTSORT:Li, David X.}}
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| [[Category:Chinese statisticians]]
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| [[Category:1960s births]]
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| [[Category:Living people]]
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| [[Category:Actuaries]]
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| [[Category:University of Waterloo alumni]]
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| [[Category:Nankai University alumni]]
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| [[Category:Université Laval alumni]]
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| [[Category:Canadian Imperial Bank of Commerce people]]
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| [[Category:Citigroup employees]]
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| [[Category:Barclays people]]
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| [[Category:Chinese emigrants to Canada]]
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| [[Category:JPMorgan Chase employees]]
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The author's name is Christy Brookins. My day occupation online psychics; gaplus.kr, is an information officer but I've currently utilized for another one. For a while I've been in Alaska but I will have to transfer in a yr or two. As a lady what she really likes is fashion and she's best psychic readings been performing it for fairly a while.
Here is my webpage clairvoyance (http://cpacs.org/index.php?document_srl=90091&mid=board_zTGg26)