Measuring and hedging financial risks in dynamical world

Nicole El Karoui

Papers from arXiv.org

Abstract: Financial markets have developed a lot of strategies to control risks induced by market fluctuations. Mathematics has emerged as the leading discipline to address fundamental questions in finance as asset pricing model and hedging strategies. History began with the paradigm of zero-risk introduced by Black & Scholes stating that any random amount to be paid in the future may be replicated by a dynamical portfolio. In practice, the lack of information leads to ill-posed problems when model calibrating. The real world is more complex and new pricing and hedging methodologies have been necessary. This challenging question has generated a deep and intensive academic research in the 20 last years, based on super-replication (perfect or with respect to confidence level) and optimization. In the interplay between theory and practice, Monte Carlo methods have been revisited, new risk measures have been back-tested. These typical examples give some insights on how may be used mathematics in financial risk management.

Date: 2003-04
References: View complete reference list from CitEc
Citations:

Published in Proceedings of the ICM, Beijing 2002, vol. 3, 773--784

Downloads: (external link)
http://arxiv.org/pdf/math/0305010 Latest version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:math/0305010

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().