"Large and moderate deviation probabilities play an important role in many applied areas, such as insurance and risk analysis. This paper studies the exact moderate and large deviation asymptotics in non-logarithmic form for linear processes with independent innovations. The linear processes we analyze are general and therefore they include the long memory case. We give an asymptotic representation for probability of the tail of the normalized sums and specify the zones in which it can be approximated either by a standard normal distribution or by the marginal distribution of the innovation process. The results are then applied to regression estimates, moving averages, fractionally integrated processes, linear processes with regularly varying exponents and functions of linear processes. We also consider the computation of value at risk and expected shortfall, fundamental quantities in risk theory and finance."

Y'all can stop sending this to me now.

This looks like it has to be either really interesting, or numbingly awful.

Links to presentations.

Shorter (really, paraphrased) Steve: Shiller's heart is in the right place, but his brain is somewhere in the gamma quadrant. In a vat. Talking to swamp things.

There is a serious selection bias issue here (disproportionately looking at the badly-performing loans), but wow does everyone come out of this looking like a dangerous idiot. (Use this as a negative example in the next incarnation of the data-mining class?)

Of course, since this is Wired, one has to wonder whether all the quotes are just made up to be "provocative". (But Salmon is generally trustworthy, and this meshes with what I know from elsewhere.) --- Donald MacKenzie fans will note the way the formula became embedded in market practice...

Full text of 1991 book on (primarily environmental) risk assessment.

Not having read either of the two books in question, I can't say whether this is a fair critique, but it sounds reasonable.

Was I the only one who read this and then thought "I can't wait to see what Tanta has to say about this?"

Aptly described by Kevin Drum as a structured-finance apparatchik performing self-criticism. But interesting, especially for the CPDO story.

I agree, but I don't think "the days when banking was populated by managers with degrees in History and who'd been leaders of the school debating team" had such a tremendous track-record either. The time when finance has done the least social harm, it seems to me, was _when it was most regulated_, i.e., the post-WWII "golden age of capitalism". The problem isn't the training of individual financiers, it's the institutions!

Should I be surprised that somebody was pulling the Capital Destruction Partners/Hedge Fund Wizards scam in real life? Or that they made millions and helped bring down AIG? Probably not but it's still shocking.

MacKenzie explains LIBOR, and the social processes behind it.

Word.

Website for the forthcoming volume edited by Bostrom & Cirkovic.

It looks like a lot of people have been following the Young/Foster "how to be a hedge fund wizard" strategy with credit default swaps, and it's all coming undone. Note: horrible institutional set-up.

Excellent piece on credit derivatives and the underlying institutional/cognitive problems of the markets, financial modeling, etc. Makes me extra glad I didn't agree to supervise the credit default swap thesis.

"If we could stop seeing terrorists at every ticket counter, pedophiles in every YA section, and baby-snatchers in every hospital, we'd be much happier and healthier as a society."

To think through.

_Something_ has to be the 2nd-leading cause of death; that doesn't mean it's important

Andrew Leonard on the Moody's report

Nothing _wrong_, but also not that deep, or even conclusive. But progress given the source. (Free PDF, registration required.)