‘The Formula That Killed Wall Street’? The Gaussian Copula and the Material Cultures of Modelling

This paper presents a predominantly oral-history account of the development of the Gaussian copula family of models, which are used in finance to estimate the probability distribution of losses on a pool of loans or bonds, and which were centrally involved in the credit crisis. The paper draws upon this history to examine the articulation between two distinct, cross-cutting forms of social patterning in financial markets: organizations such as banks; and what we call ‘evaluation cultures’, which are shared sets of material practices, preferences and beliefs found in multiple organizations. The history of Gaussian copula models throws light on this articulation, because those models were and are crucial to intraand inter-organizational coordination, while simultaneously being ‘othered’ by members of a locally dominant evaluation culture, which we call the ‘culture of no-arbitrage modelling’. The paper ends with the speculation that all widely-used derivatives models (and indeed the evaluation cultures in which they are embedded) help to generate inter-organizational co-ordination, and all that is special in this respect about the Gaussian copula is that its status as ‘other’ makes this role evident.