David X. Li

David X. Li ( The Financial Times has called him "the world's most influential actuary", while after the 2008 financial crisis, to which Li's model has been partly credited to blame, David Li is currently an adjunct professor at the University of Waterloo in the Statistics and Actuarial Sciences department.

Career Li began his career in finance in 1997 at the Canadian Imperial Bank of Commerce in the World Markets division. He is also a professor at the Shanghai Advanced Institute of Finance (SAIF). Kai Gilkes of CreditSights says "Li can't be blamed"; although he invented the model, it was the bankers who misinterpreted and misused it. In section 1 through 5.3, Li describes actuarial math that sets the stage for his theory. The mathematics are from established statistical theory, actuarial models, and probability theory. In section 5.4, he uses Gaussian copula to measure event relationships, or mathematically, correlations, between random economic events, expressed as:

In layman's terms, he proposes to quantify the relationship between two events "House A" defaulting and "House B" defaulting by looking at the dependence between their time-unit-default (or survival time; see survival analysis). While under some scenarios (such as real estate) this correlation appeared to work most of the time, the underlying problem is that the single numerical data of correlation is a poor way to summarize history, and hence is not enough to predict the future. From section 6.0 onward, the paper presents experimental results using the Gaussian copula.