‘A device for being able to book P&L’: The organizational embedding of the Gaussian copula

This paper, the second of two articles on the Gaussian copula family of models, discusses the attitude of ‘quants’ (modellers) to these models, showing that, contrary to some accounts, those quants were not ‘model dopes’ who uncritically accepted the outputs of the models. Although sometimes highly critical of Gaussian copulas – even ‘othering’ them as not really being models – they nevertheless nearly all kept using them, an outcome we explain with reference to the embedding of these models in inter- and intra-organizational processes: communication, risk control and especially the setting of bonuses. The article also examines the role of Gaussian copula models in the 2007-08 global crisis and in a 2005 episode known as ‘the correlation crisis’. We end with the speculation that all widely-used derivatives models (and indeed the evaluation culture 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.