Advertisement

Lessons from Statistical Finance

  • Marc Potters
Chapter

Abstract

Iwant to shed some light on the current financial crises from the point of view of financial risk. By understanding the known failures of the classical model of Black and Scholes we can hope to unveil the pitfalls of more recent models such as copula models for CDO (Collateralized Debt Obligation) pricing. From this analysis we will realize that a major effect missing from modern mathematical models is the phenomenon of price impact and the resulting feedback loops between trading strategies and asset prices. I should state that my point of view is entrenched in my background as a physicist and a financial practitioner.

Keywords

Hedge Fund Copula Model Liquidity Risk Credit Derivative Scholes Model 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

Note

  1. 1.
    Adapted from: Bouchaud J.-Ph. and M. Potters (2003) Theory of Financial Risk and Derivative Pricing, Cambridge University Press, Cambridge.CrossRefGoogle Scholar

Copyright information

© Robert Skidelsky and Christian Westerlind Wigström 2010

Authors and Affiliations

  • Marc Potters

There are no affiliations available

Personalised recommendations