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 人物：David X. Li（转贴） |
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安普若
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作者：安普若 在 海归商务 发贴, 来自【海归网】 http://www.haiguinet.com
David X. Li
https://en.wikipedia.org/wiki/David_X._Li
David X. Li (born in China in the 1960s as Xiang Lin Li) is a quantitative analyst and a qualified actuary who in the early 2000s pioneered the use of Gaussian copula models for the pricing of collateralized debt obligations (CDOs). The Financial Times called him "the world’s most influential actuary," while in the aftermath of the Global financial crisis of 2008–2009, to which Li's model has been credited partly to blame, his model has been called a "recipe for disaster".
Biography
Li was born as Xiang Lin Li and raised in a rural part of China during the 1960s; his family had been relocated during the Cultural Revolution to a rural village in southern China for "re-education". Li was talented and with hard work he received a master's degree in economics from Nankai University, one of the country’s most prestigious universities. After leaving China in 1987 at the behest of the Chinese government to learn more about capitalism from the west, he earned an MBA from Laval University in Quebec and a PhD in statistics from University of Waterloo in Ontario. At this point he changed his name to David X. Li. His financial career began in 1997 at Canadian Imperial Bank of Commerce, and by 2003 he was director and global head of derivatives research at Citigroup. In 2004 he moved to Barclays Capital and headed up the quantitative analytics team. In 2008 Li moved to Beijing where he works for China International Capital Corporation as head of the risk-management department.
CDOs and Gaussian copula
Li's paper "On Default Correlation: A Copula Function Approach" (2000) was the first appearance of the Gaussian copula applied to CDOs, which quickly became a tool for financial institutions to correlate associations between multiple securities. This allowed for CDOs to be accurately priced for a wide range of investments that were previously too complex to price, such as mortgages. However in the aftermath of the Global financial crisis of 2008–2009 the model has been seen as fundamentally flawed and a "recipe for disaster". According to Nassim Nicholas Taleb, "People got very excited about the Gaussian copula because of its mathematical elegance, but the thing never worked. Co-association between securities is not measurable using correlation"; in other words because past history is not predictive of the future. "Anything that relies on correlation is charlatanism."
Li himself apparently understood the limitation of his model, in 2005 saying "Very few people understand the essence of the model." Li also wrote that "The current copula framework gains its popularity owing to its simplicity....However, there is little theoretical justification of the current framework from financial economics....We essentially have a credit portfolio model without solid credit portfolio theory." Kai Gilkes of CreditSights says "Li can't be blamed", although he invented the model, it was the bankers who misinterpreted it.
Canadian scholar scapegoat for global meltdown
Math whiz proposed applying this statistical formula to credit risk, and financial meltdown
Torstar News Service
Former University of Waterloo statistician David X. Li didn't burn down the American economy. He just supplied the matches.
As economists and market watchers cast about for people to blame for the U.S. market meltdown, Li has surfaced as a scapegoat. Recently, Wired magazine ran an article on Li's work subtitled, "The Formula That Killed Wall Street."
The formula in question is the so-called Gaussian copula function. On the most basic level, the formula allows statisticians to model the behaviour of several correlated risks at once.
In a scholarly paper published in 2000, Li proposed the theorem be applied to credit risks, encompassing everything from bonds to mortgages. This particular copula was not new, but the financial application Li proposed for it was.
Disastrously, it was just simple enough for untrained financial analysts to use, but too complex for them to properly understand. It appeared to allow them to definitively determine risk, effectively eliminating it. The result was an o*r*g*y of misspending that sent the U.S. banking system over a cliff.
"To say David brought down the market is like blaming Einstein for Hiroshima," says Prof. Harry Panjer, Li's mentor at the University of Waterloo. "He wasn't in charge of the financial world. He just wrote an article."
When David X. Li first arrived from China in 1987, he was known as Xiang Lin Li. He already held a masters in economics from Tianjin's Nankai University. He was one of a group of the faculty there who won a scholarship to study business in Canada through CIDA. In order to claim his prize at Montreal's Laval University, Li was given four months to master French.
"We were all highly motivated," says Jie Dai, who was in the program with Li. "He was from a small town in the south of China. A small family, very ordinary, not poor or rich. There wasn't anything distinguished about his personality."
Li graduated with an MBA in 1991. Most of his Chinese classmates were bound for academia. Li saw a more worldly future. Says Dai: "I clearly remember him mention that if you are an actuarial guy, you can earn a lot more money."
Li had recently married a colleague from Nankai when he decided to study at Waterloo's department of statistics and actuarial sciences. He was drawn by the work of Panjer, a world leader in the study of loss modelling, especially as it applies to the world of insurance.
"He had the ability to take ideas from different fields and synthesize them," Panjer says.
In Waterloo, Li lived the hand-to-mouth life of a grad student. He anglicized his name. He and Panjer became close, and still correspond. Over six years, he earned his third masters and a PhD.
After graduation in 1997, Li taught briefly. He worked for CIBC World Markets. But his ambition quickly drove him to New York. He tore up the corporate ladder. By 2000, he was a partner in J.P. Morgan's Risk Metrics unit, trying to find ways to leverage a new generation of risk-based financial assets.
His breakthrough was an article published that year entitled, "On Default Correlation: A Copula Function Approach."
Many of the ideas contained within it were drawn from statistics research Li had observed firsthand at Waterloo. His insight was to transfer the work to financial models.
Li's model sidestepped the problem of trying to correlate all the variables that determine risk. Instead, it based its assumptions on the historical dips and swells of the market itself. In essence, Li used the past to map the future.
"It was a very simple mathematical answer almost anyone could use," Panjer says "And when you've got a hammer, everything suddenly looks like a nail. They jumped on it."
Through the lens of Li's theorem, even the shakiest investments suddenly looked viable. The Gaussian cupola created the sort of financial alchemy that made high-risk mortgages and credit card debt look like triple-A rated gold.
Money poured into CDSs (credit default swaps), a financial device that acts as an insurance policy against defaults. By the end of 2007, the total investment in credit default swaps had swelled to $62 trillion (U.S.), a 6,700 per cent increase in only six years.
Li didn't make money directly off the idea, but it made him famous.
Maybe he sensed the danger inherent in the system he'd help establish. By 2005, Li was among those warning about the limitations of his model. "The most dangerous part is when people believe everything coming out of (the model)," he told The Wall Street Journal.
What Li's theorem could not do was predict what might happen in extreme economic environments, what experts call "tail dependency." And one was arriving.
The 2008 collapse of the U.S. housing bubble rendered Li's model useless. Defaults that the model had not predicted piled up, rippling through U.S. banks and wiping out trillions of dollars in investment.
But Li's colleagues say he's not to blame. "We have a saying in statistics, `All models are wrong, but some are useful,'" says Panjer. "He supplied something, a tool kit, for financial analysts. They took one small part of it and used it in ways he had never intended."
Li since moved to Beijing, where he heads the risk management department for the China International Capital Corp., a major investment bank. He has not commented on the meltdown or his role in it.
作者：安普若 在 海归商务 发贴, 来自【海归网】 http://www.haiguinet.com
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 人物：David X. Li（转贴） -- 安普若 - (9027 Byte) 2009-6-09 周二, 02:50 (3847 reads)
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