The Conventional Past, Behavioral Present, and Algorithmic Future of Risk and Finance

Philip Z. Maymin
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Philip Z. Maymin: University of Bridgeport Trefz School of Management

Finante - provocarile viitorului (Finance - Challenges of the Future), 2018, vol. 1, issue 20, 74-84

Abstract: Modern finance is a relatively young field, only a few decades old, and already it has gone through two phase transitions and is perhaps poised to undergo a third. The first transition starting from the 1950s brought modern portfolio theory into the mainstream with econometric and optimization based approaches to portfolio construction and risk management. The second transition starting from the 1990s shifted those conventional approaches based on rational investors into a focus on the actual psychological factors driving investor behavior along with the important concept of limits to arbitrage. The third transition happening now aims to take an algorithmic approach to finance, looking to explore how and why investor heuristics evolve and predominate, how automated processes can respond to unpredictable events, and what the effects will be on the markets as ever-faster computers trained on ever-larger data sets become the predominant and nearly real-time traders.

Keywords: behavioral; algorithmic; risk; finance. (search for similar items in EconPapers)
JEL-codes: G10 G11 G12 G14 G18 (search for similar items in EconPapers)
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:aio:fpvfcf:v:1:y:2018:i:20:p:74-84

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