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The Devil Is in the Tails: Actuarial Mathematics and the Subprime Mortgage Crisis
Company: ETH Zurich
Company Url: Click here to open
Year Of Publication: 2010
Month Of Publication: January
Pages: 29
Download Count: 13
View Count: 1717
Comment Num: 0
Language: English
Source: working paper
Who Can Read: Free
Date: 6-20-2010
Publisher: Administrator
Summary
In the aftermath of the 2007-2008 nancial crisis, there has been criticism of mathematics
and the mathematical models used by the nance industry. We answer these criticisms
through a discussion of some of the actuarial models used in the pricing of credit derivatives.
As an example, we focus in particular on the Gaussian copula model and its drawbacks. To
put this discussion into its proper context, we give a synopsis of the nancial crisis and a
brief introduction to some of the common credit derivatives and highlight the diculties in
valuing some of them.
We also take a closer look at the risk management issues in part of insurance industry
that came to light during the nancial crisis. As a backdrop to this, we recount the events
that took place at American International Group during the nancial crisis. Finally, through
our paper we hope to bring to the attention of a broad actuarial readership some \lessons
(to be) learned" or \events not to be forgotten".
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Author(s)
Embrechts, Paul Sign in to follow this author
Donnelly, Catherine Sign in to follow this author
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