I am fascinated by the way mathematicians explain risk.

But, as Recipe for Disaster: The Formula That Killed Wall Street (a 4 page article in Wired) shows, the mathematical formulae are reliant on valid assumptions.

The article tells the story of mathematician David X.Li’s formula, known as a Gaussian copula function, for predicting risks of corporate bonds (including mortgage bonds) which was ultimately used as the basis for collateralised debt obligations.