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by Pierre Devolder

by Pierre Devolder

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ResearchTalks Vol. 3 - Risk modelling: Is finance compatible with mathematic… Presentation Transcript

  • 1. Institut de Statistique, Biostatistique et Sciences Actuarielles RISK MODELLING: Is Finance compatible with Mathematics ? Prof. Pierre DEVOLDER UCL
  • 2. Evolution of Interest rates (UK) 2
  • 3. STORY OF A BELGIAN STOCK … 3
  • 4. « Prediction is very difficult, especiallyabout the future. … » Niels BOHR ( 1885- 1962) 4
  • 5. Everything started with games …. 5
  • 6. Blaise PASCAL Pierre de FERMAT 6
  • 7. A GOOD EXERCISE FOR TONIGHT….You throw 2 dices and you add the valuesobtainedWhat is the most likely result ? 7
  • 8. Insurance has been the next step 8
  • 9. GAMES INSURANCE LAW OF LARGE NUMBERS PROBABILITY THEORY 9
  • 10. Risk .. Or … uncertainty ???To preserve the distinction betweenmeasurable uncertainty and anunmeasurable one we may use the term“risk” for the former and the term“uncertainty” for the latter. ( Knight, 1921 ) 10
  • 11. Risk and financeDoes financial risk really exist ?? 11
  • 12. RATING AGENCY After 1 year After 6 years AAA 0% 0,34% AA+ 0,01% 0,49% AA 0,03% 0,66% A 0,07% 1,06% BBB+ 0,12% 1,74% BBB- 0,42% 4,94% BB+ 0,75% 10,65%junk B- 11,69% 35,58% 12
  • 13. Risk ManagementBASEL 2 / SOLVENCY 2 :Probability of ruin less than 0.5% … ??? … 200 years of consistent experience ??? 13
  • 14. The Gaussian LegendThe normal distribution .. is not a religion … 14
  • 15. The danger of correlation 15
  • 16. Finance and Neural Networks 16
  • 17. Finance and Quantum Mechanics 17
  • 18. You have to take risks. We will only understand the miracle of life fully when we allow the unexpected to happen. Paulo COELHO 18