Credit Models and the Crisis: A Journey into CDOs, Copulas, Correlations and Dynamic Models

Preface

RANDOMIZED BY FOOLISHNESS

This is a book that has been written very rapidly in order to respond to a perceived need for clarity in the quantitative world. The second section of this preface, “How I learned to stop worrying and love the CDOs”, is obviously ironic in referring to the hysteria that has often characterized accounts of modelling and mathematical finance in part of the press and the media, and the demonization of part of the market products related to the crisis, such as CDOs and derivatives more generally (Brigo et al., 2009b). Let us be clear and avoid any misunderstanding: the crisis is very real; it has caused suffering to many individuals, families and companies. However, it does not help to look for a scapegoat without looking at the whole picture with a critical eye. Accounts that try to convince the public that the crisis is due mainly to modelling and to the trading of sophisticated and obscure products are necessarily partial, and this book is devoted to rectifying this perceptive bias.

Indeed, public opinion has been bombarded with so many clichés on derivatives, modelling and quantitative analysis that we feel that a book offering a little clarity is needed. And while we are aware that this sounds a little Don Quixotesque, we hope the book will help to change the situation. In trying to do so, we need to balance carefully the perspectives of different readerships. We would like our book to be attractive to the relatively general industry and academic ...