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Lessons from Statistical Finance

In: The Economic Crisis and the State of Economics

Author

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  • Marc Potters

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.

Suggested Citation

  • Marc Potters, 2010. "Lessons from Statistical Finance," Palgrave Macmillan Books, in: Robert Skidelsky & Christian Westerlind Wigström (ed.), The Economic Crisis and the State of Economics, chapter 0, pages 31-42, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-0-230-10569-0_3
    DOI: 10.1057/9780230105690_3
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