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Credit Risk Frontiers: Subprime Crisis, Pricing and Hedging, CVA, MBS, Ratings, and Liquidity
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Credit Risk Frontiers: Subprime Crisis, Pricing and Hedging, CVA, MBS, Ratings, and Liquidity

by Tomasz R. Bielecki, Damiano Brigo, Frédéric Patras
February 2011
Intermediate to advanced content levelIntermediate to advanced
768 pages
22h 39m
English
Bloomberg Press
Content preview from Credit Risk Frontiers: Subprime Crisis, Pricing and Hedging, CVA, MBS, Ratings, and Liquidity

Chapter 2

Quantitative Finance: Friend or Foe?

Benjamin Herzog

Société Générale

Julien Turc

Société Générale

The subprime crisis of 2007 and the global recession that followed have gotten financial analysts thinking. Given the systemic nature of the crisis, the tools financial institutions used to develop their lending and investment banking units have been examined for weaknesses. Flaws attributed to financial engineering have been singled out on several occasions. This article starts by introducing a simple risk model that takes extreme risks into account and then runs an out-of-sample analysis of the years 2007–2008. We continue with an analysis of modern pricing models and lessons learned from the crisis.

Models do not accurately render ...

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Publisher Resources

ISBN: 9781118003831Purchase book