Newsworthy Math
A Discussion about Mathematics in Society
April, 2010
Synthetic Collateralized Alchemy
What Was Wrought CDO’s (collateralized debt obligations), see this for my introduction to these, depend on underpriced low grade debt. If I can get a 20% discount on debt that has a 10% chance of defaulting, then I should just buy this all day. All I need is enough risky debt (and some confidence in [...]
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The Unexpected Cost of Lotteries
By definition, the expected value of a one in five chance of winning $10 dollars is worth $2 ($10/5). But to human beings, with our finite life spans and our asymmetric financial needs, a one in a million chance of $1,000,000 is not necessarily worth $1, it might be worth more. Lottery tickets cost far, far more [...]
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Insurance and Mortality Curves
The life insurance business is very good at calculating the probability of you dying within the next year. It’s one of these things that we’ve being doing so long that we’re pretty good at it. Given your circumstances, they can produce a curve showing the probability of you dying at any given year from then [...]
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How Collateralized Debt Works. (And Where It Got Us.)
Collateralized debt sounds like a damn good idea, and it can be. It’s fairly complicated, but it isn’t rocket science, and it’s really worth knowing enough about to make sense of the news these days. Bad Debt: 15% Off Many relatively high risk borrowers need, or would like, credit; many investors would take a small [...]
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