Industry Open-Sources Model For Infamous CDS 161
GlobalEcho writes "Credit default swaps (CDS) are infamous for bringing down AIG and requiring a bailout of hundreds of billions of dollars. Because the market for these was so murky, the US government has insisted that Wall Street create a clearinghouse for these contracts. In a fresh twist, part of the deal is that the models used to price CDS have been standardized, and that the pricing code was made open source, under a somewhat BSD-like license. The source code (originally written by JPMorgan) provides the basic pricing routines, plus an Excel interface. To my knowledge this is the first significant migration of an investment bank product platform from its usual super-secret proprietary home to the rest of the world."
source code links (Score:3, Informative)
Not sure if a direct link will work:
http://www.markit.com/information/cds-model/download/contentParagraphs/00/document/isda_cds_model_c_v1.7.zip [markit.com]
http://www.markit.com/information/cds-model/download/contentParagraphs/01/document/cds.xll [markit.com] (excel)
http://www.cdsmodel.com/ [cdsmodel.com]
Grumble - "work" email address only (Score:3, Informative)
Tried to download the source from www.cdsmodel.com (where the TFA) points you.
Wants an email address
"I Accept
Please keep me Informed about changes to the Standard Model:
Email Address:
"
If you choose not to be informed it asks for an address anyway.
If you add an email address - I used a gmail address - it asks for a work address. emailsucks@jpmorganblows.com now has a copy of the source.
Re:In theory... (Score:3, Informative)
Well, there's the lap dances [rockymountainnews.com], rock concerts [tmz.com], and golf tournaments [golfweek.com], but really, if no one cares about the pitfalls of 30:1 leverage, who cares about these puny details.
Not a big deal (Score:5, Informative)
I work in this area, and this isn't really that big of a deal, regardless of the spin they put in the announcement.
This is about publishing a reference implementation of an already widely published model so that when party A does a particular calculation, related to a settlement amount for a particular trade, and party B does the same calculation, the values match.
Qualitatively, and to a large extent quantitatively, everybody on the street has been using the same model all along. The idea of publishing a reference implementation is meant to minimize conflicts in settling trades.
The accuracy of the valuation model here is not at the heart of any of the problems that AIG -- or any other firm, for that matter -- have experienced. That's more aligned with a simple lack of oversight on exposure.
QuantLib (Score:2, Informative)
Re:Oh noes, not Excel! (Score:4, Informative)
Everyone, without exception, uses excel in the banking world. A lot of backend stuff runs on OSS though. And the source code to the calculator is in C, and includes a Linux makefile.
Re:Open source bankruptcy (Score:1, Informative)
Re:Something is weird with that domain (Score:3, Informative)
Check the source code in HTML
second url is listed as "http://www.cdsmodel.com./"
remove the period/dot after "com"
That's the entire point, the way DNS works all names actually end with a '.'. But because it's always there, it can be implicit. What probably happened is that somebody screwed up their domain-based virtual hosting somehow due to not understanding this.
Re:But... but... (Score:3, Informative)
You are mistaken. The government received senior bonds in exchange for the money. Today, Citigroup asked the government to convert those bonds to equity, and the government now owns 36% of Citigroup (under the bond structure, Citi had to pay the government interest; apparently, that was a problem, so they converted them to equity; hopefully they got a reasonable price).
It may end up that the government investment disappears, or it may turn a profit (I would guess that the government will recoup a significant percentage of the money), but it didn't disappear down some rabbit hole, it was in exchange for financial instruments obligating the banks to pay the government back.
Starting a new bank with a clean balance sheet probably would have been more effective, but they choose to bail out people who had deposited funds at existing banks (that's almost everybody...).
government bailout != communism (Score:4, Informative)
Here's the basic idea. Under Capitalism, business owners make a profit by paying their workers less than their labor is worth (so all profit is exploitation), and the business owners are able to do this because racism &c. divides the workers. Eventually, the exploitation of workers gets so bad that they develop a class consciousness on the basis of their economic status that trumps racial &c. divides, and they (forcefully) take power from the business owners. The final stage of Marxist communism is really a form of anarchy, where the means of production are owned by workers in a distributed fashion.
Agree with Communism or not, at least keep in mind that any top-down government aid paid for by workers to huge corporations is basically the opposite of Communism.
What's the big deal? (Score:4, Informative)
Re:Turns out BSD wasn't dying (Score:1, Informative)
Three quarters.
(Re-read GP and pay close attention tot he wording)
Re:If they had only done that sooner (Score:3, Informative)
I suspect it isn't a problem with the computer code. It was a problem with the values fed into the program.
I sometimes find myself having to value derivatives at work. I know what the formulae for working out the values are, but finding the right values to use in it is very difficult, and often very subjective.