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Conclusion

In: Extreme Financial Risks and Asset Allocation

Author

Listed:
  • Olivier Le Courtois
  • Christian Walter

Abstract

The studies conducted between the 1950s and the 1970s by Markowitz, Sharpe, Samuelson, Black, Scholes, and Merton made possible the construction of a consistent framework for the management of portfolios and the valuation of derivatives. This framework, as well as the 1992 model of Heath, Jarrow, and Morton, which unites numerous interest rate submodels, yields results and predictions that can vary considerably depending on the hypotheses that are made. Most traditional financial models rest on a Brownian representation of dynamics, so pertain to the Leibnizian continuity principle mentioned in the introduction. This principle has been abandoned in physics and genetics, but retained in economics and finance. Contrary to this natural philosophy where things change gradually, we aimed to take into account discontinuities within all financial techniques of portfolio and risk management. Modeling asset returns using Lévy processes was systematically explored and included within the classic methods dating back to the 1970s…

Suggested Citation

  • Olivier Le Courtois & Christian Walter, 2014. "Conclusion," World Scientific Book Chapters, in: Extreme Financial Risks and Asset Allocation, chapter 13, pages 331-331, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9781783263097_0013
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