Abstract
Estimating and controlling large risks has become one of the main concern 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 three 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 price for options. We finally argue that a true ‘microscopic’ theory of price fluctuations (rather than a statistical model) would be most valuable for risk assessment. A simple Langevin-like equation is proposed, as a possible step in this direction.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callMore From: Physica A: Statistical Mechanics and its Applications
Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
