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Industry Open-Sources Model For Infamous CDS

Posted by ScuttleMonkey on from the further-down-the-transparency-highway dept.

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."

2 of 161 comments (clear)

  1. Not a big deal by snax · · 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.

  2. government bailout != communism by jpate · · Score: 4, Informative

    This is an important point that people don't seem to understand, probably because Marxist theory is not really taught except in specialist university level classes.

    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.