The Rise and Fall of the Gaussian Copula Function

Felix Salmon has a terrific cover story in this month’s Wired on the all-too-seductive Gaussian Copula function, which made it easy to calculate risk on Wall Street. Take a big basket of financial instruments, each with their own risks, through them into the Copula function, and presto: you get the net risk. It was so beautiful and apparently bulletproof that investors began treating it like a black box. Then it all went wrong.

This story profiles David X. Li, the inventor of the formula (now l