In the stock market crash of 2008, investors lost trillions of dollars.
Stock market crash of 2008 ushered in a new realization.
No one can conquer the market with their mathematical models.
Markets will always have the upper hand when it comes to giving the surprise.
The story of stock market crash of 2008 starts in early 1980s when Wall Street started hiring maths and physics PhDs.
Their job was to model the markets and make predictions that could then be used in trading and investing.
This is the story of David X. Li a maths genius, a quantitative analyst
and a qualified actuary who developed the Gaussian copula function.
It was thought that this Gaussian Copula Function will solve the problem of financial risk modelling.
These Gaussian Copula Functions was used in developing innovative financial products like the mortgage securities.
Read this blog post in which I explain what happened when everyone started believing that Gaussian Copula Function cannot go wrong.