2014/02/06 by Donald Mackenzie, Donald MacKenzie, Taylor Spears · 6 citations
Economics, Econometrics and Finance · #Banking stability, regulation, efficiency #Credit Risk and Financial Regulations #Economic, financial, and policy analysis
paper · doi:10.1177/0306312713517157
openalex publication_date 2014/02/06 · openalex created_date 2025/10/10 · openalex updated_date 2026/08/01
Drawing on documentary sources and 114 interviews with market participants, this and a companion article discuss the development and use in finance of the Gaussian copula family of models, which are employed to estimate the probability distribution of losses on a pool of loans or bonds, and which were centrally involved in the credit crisis. This article, which explores how and why the Gaussian copula family developed in the way it did, employs the concept of 'evaluation culture', a set of practices, preferences and beliefs concerning how to determine the economic value of financial instruments that is shared by members of multiple organizations. We identify an evaluation culture, dominant within the derivatives departments of investment banks, which we call the 'culture of no-arbitrage modelling', and explore its relation to the development of Gaussian copula models. The article suggests that two themes from the science and technology studies literature on models (modelling as 'impure' bricolage, and modelling as articulating with heterogeneous objectives and constraints) help elucidate the history of Gaussian copula models in finance.