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Elements for a theory of financial risks

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  • Bouchaud, J.-Ph

Abstract

Estimating and controlling large risks has become one of the main concerns of financial institutions. This requires the development of adequate statistical models and theoretical tools (which go beyond the traditional theories based on Gaussian statistics), and their practical implementation. Here we describe two interrelated aspects of this program: we first give a brief survey of the peculiar statistical properties of the empirical price fluctuations. We then review how an option pricing theory consistent with these statistical features can be constructed, and compared with real market prices for options.

Suggested Citation

  • Bouchaud, J.-Ph, 2000. "Elements for a theory of financial risks," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 285(1), pages 18-28.
    • Handle: RePEc:eee:phsmap:v:285:y:2000:i:1:p:18-28
    DOI: 10.1016/S0378-4371(00)00269-7
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    References listed on IDEAS

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    1. Rama Cont & Marc Potters & Jean-Philippe Bouchaud, 1997. "Scaling in stock market data: stable laws and beyond," Science & Finance (CFM) working paper archive 9705087, Science & Finance, Capital Fund Management.
    2. Longin, Francois M, 1996. "The Asymptotic Distribution of Extreme Stock Market Returns," The Journal of Business, University of Chicago Press, vol. 69(3), pages 383-408, July.
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    Cited by:

    1. Okyu Kwon & Jae-Suk Yang, 2008. "Information flow between stock indices," Papers 0802.1747, arXiv.org.
    2. Zoltan Eisler & Janos Kertesz, 2006. "Liquidity and the multiscaling properties of the volume traded on the stock market," Papers physics/0606161, arXiv.org.

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