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 Many of us know about AIG bailout by the US federal govt after 2008 market crash. AIG (American International Group) faced a near-collapse during the 2008 financial crisis due to several factors. Here are the key reasons: 1. Credit Default Swaps (CDS): AIG sold a large number of CDS, which are essentially insurance contracts on bonds. When the housing market crashed, the mortgage-backed securities underlying these CDS defaulted, leading to massive losses. 2. Securities Lending: AIG engaged in securities lending, which also resulted in significant losses when the value of the securities dropped. 3. Poor Risk Management: AIG’s risk management practices were inadequate, and the company took on excessive risk without proper oversight. 4. Deregulation: The deregulation of the financial industry allowed AIG to engage in risky financial practices without sufficient regulatory oversight. 5. Over-reliance on Mortgage-Backed Securities: AIG heavily invested in mortgage-backed securities, wh...

Financial Engineering: Key Concepts Financial engineering is a multidisciplinary field that combines financial theory, mathematics, and computer science to design and develop innovative financial products and solutions. Here's an in-depth look at the key concepts you mentioned: 1. Statistical Analysis Statistical analysis is a crucial component of financial engineering. It involves using statistical techniques to analyze and interpret financial data, such as: Hypothesis testing : to validate assumptions about financial data Regression analysis : to model relationships between variables Time series analysis : to forecast future values based on historical data Probability distributions : to model and analyze risk Statistical analysis helps financial engineers to identify trends, patterns, and correlations in financial data, which informs decision-making and risk management. 2. Machine Learning Machine learning is a subset of artificial intelligence that involves training algorithms t...