Financial Markets are Not Efficient: Financial Literacy as an Effective Risk Management Tool

Financial Risk Measurement for Financial Risk Management∗

Current practice largely follows restrictive approaches to market risk measurement, such as historical simulation or RiskMetrics. In contrast, we propose flexible methods that exploit recent developments in financial econometrics and are likely to produce more accurate risk assessments, treating both portfoliolevel and asset-level analysis. Asset-level analysis is particularly challenging becau...

Efficient Simulation in Financial Risk Management

Efficient Simulation in Financial Risk Management

Takeover Defense When Financial Markets are (Only) Relatively Efficient

Financial markets as adaptative ecosystems

The option markets offer a very interesting example of the adaptation of a population (the traders) to a complex environment, through trial and errors and natural selection (unefficent traders disappear quickly). The problem is the following: an ‘option’ is an insurance contract protecting its owner against the rise (or fall) of financial assets, such as stocks, currencies, etc. The problem of ...

Financial markets as adaptive systems

– We show, by studying in detail the market prices of options on liquid markets, that the market has empirically corrected the simple, but inadequate Black-Scholes formula to account for two important statistical features of asset fluctuations: “fat tails” and correlations in the scale of fluctuations. These aspects, although not included in the pricing models, are very precisely reflected in t...