Lecture9

Lecture9 - Christie Hua LECTURE 9 FINANCIAL CRISIS I Cause...

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Christie Hua 5/4/09 LECTURE 9 – FINANCIAL CRISIS I. Cause and remedy a. Subprime mortages collapse b. Overleveraging c. CDOs, hedge funds (quant investment) II. Wall Street a. Quants’ gamble b. Black swan black swan controls (fine-tune math) c. Failure of rating agencies, finance media re-rate ratings i. Also used same mathematical models ii. Believed the other banks d. Speculation above investment i. Needed to be bailed out by government ii. Financial crisis spreading all over the world iii. Mexico (Tequila crisis), Thailand (asian crisis), Brazil 1. they happened overseas, not in the United States/Japan/Europe e. Black Swan = book that all the Wall Street engineers had been reading i. Black swans did not exist in Europe ii. Phenomenon in mathematics, falls outside the range of ordinary expectations 1. all the math models were super/sophisticated except when they encountered black swans 2. then the network of probability around which they were organized collapsed a. black swan death of so many triple-A rated
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Lecture9 - Christie Hua LECTURE 9 FINANCIAL CRISIS I Cause...

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