IDEAS home Printed from https://ideas.repec.org/a/eee/phsmap/v285y2000i1p18-28.html
   My bibliography  Save this article

Elements for a theory of financial risks

Author

Listed:
  • Bouchaud, J.-Ph

Abstract

Estimating and controlling large risks has become one of the main concerns 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 two 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 prices for options.

Suggested Citation

  • Bouchaud, J.-Ph, 2000. "Elements for a theory of financial risks," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 285(1), pages 18-28.
    • Handle: RePEc:eee:phsmap:v:285:y:2000:i:1:p:18-28
    DOI: 10.1016/S0378-4371(00)00269-7
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0378437100002697
    Download Restriction: Full text for ScienceDirect subscribers only. Journal offers the option of making the article available online on Science direct for a fee of $3,000
    File URL: https://libkey.io/10.1016/S0378-4371(00)00269-7?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Rama Cont & Marc Potters & Jean-Philippe Bouchaud, 1997. "Scaling in stock market data: stable laws and beyond," Science & Finance (CFM) working paper archive 9705087, Science & Finance, Capital Fund Management.
    2. Longin, Francois M, 1996. "The Asymptotic Distribution of Extreme Stock Market Returns," The Journal of Business, University of Chicago Press, vol. 69(3), pages 383-408, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Zoltan Eisler & Janos Kertesz, 2006. "Liquidity and the multiscaling properties of the volume traded on the stock market," Papers physics/0606161, arXiv.org.
    2. Okyu Kwon & Jae-Suk Yang, 2008. "Information flow between stock indices," Papers 0802.1747, arXiv.org.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Y. Malevergne & V. F. Pisarenko & D. Sornette, 2003. "Empirical Distributions of Log-Returns: between the Stretched Exponential and the Power Law?," Papers physics/0305089, arXiv.org.
    2. Sofiane Aboura, 2014. "When the U.S. Stock Market Becomes Extreme?," Risks, MDPI, vol. 2(2), pages 1-15, May.
    3. Geluk, J.L. & De Vries, C.G., 2006. "Weighted sums of subexponential random variables and asymptotic dependence between returns on reinsurance equities," Insurance: Mathematics and Economics, Elsevier, vol. 38(1), pages 39-56, February.
    4. Cumperayot, Phornchanok & Kouwenberg, Roy, 2013. "Early warning systems for currency crises: A multivariate extreme value approach," Journal of International Money and Finance, Elsevier, vol. 36(C), pages 151-171.
    5. Rama Cont & Jean-Philippe Bouchaud, 1997. "Herd behavior and aggregate fluctuations in financial markets," Science & Finance (CFM) working paper archive 500028, Science & Finance, Capital Fund Management.
    6. Ruggero Grilli & Gabriele Tedeschi & Mauro Gallegati, 2015. "Markets connectivity and financial contagion," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 10(2), pages 287-304, October.
    7. J. Doyne Farmer & Laszlo Gillemot & Fabrizio Lillo & Szabolcs Mike & Anindya Sen, 2004. "What really causes large price changes?," Quantitative Finance, Taylor & Francis Journals, vol. 4(4), pages 383-397.
    8. Einmahl, John & He, Y., 2020. "Unified Extreme Value Estimation for Heterogeneous Data," Other publications TiSEM dfe6c38c-823b-4394-b4fd-a, Tilburg University, School of Economics and Management.
    9. Danilo Delpini & Giacomo Bormetti, 2012. "Stochastic Volatility with Heterogeneous Time Scales," Papers 1206.0026, arXiv.org, revised Apr 2013.
    10. Martin D. Gould & Mason A. Porter & Stacy Williams & Mark McDonald & Daniel J. Fenn & Sam D. Howison, 2010. "Limit Order Books," Papers 1012.0349, arXiv.org, revised Apr 2013.
    11. Nirei, Makoto & Sushko, Vladyslav, 2011. "Jumps in foreign exchange rates and stochastic unwinding of carry trades," International Review of Economics & Finance, Elsevier, vol. 20(1), pages 110-127, January.
    12. Weron, Rafał, 2004. "Computationally intensive Value at Risk calculations," Papers 2004,32, Humboldt University of Berlin, Center for Applied Statistics and Economics (CASE).
    13. Thierry Chauveau & Sylvain Friederich & Jérôme Héricourt & Emmanuel Jurczenko & Catherine Lubochinsky & Bertrand Maillet & Christophe Moussu & Bogdan Négréa & Hélène Raymond-Feingold, 2004. "La volatilité des marchés augmente-t-elle ?," Revue d'Économie Financière, Programme National Persée, vol. 74(1), pages 17-44.
    14. Mauricio Labadie & Charles-Albert Lehalle, 2012. "Optimal starting times, stopping times and risk measures for algorithmic trading: Target Close and Implementation Shortfall," Papers 1205.3482, arXiv.org, revised Dec 2013.
    15. Hussain, Saiful Izzuan & Li, Steven, 2015. "Modeling the distribution of extreme returns in the Chinese stock market," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 34(C), pages 263-276.
    16. Kole, H.J.W.G. & Koedijk, C.G. & Verbeek, M.J.C.M., 2004. "The effects of systemic crises when investors can be crisis ignorant," ERIM Report Series Research in Management ERS-2004-027-F&A, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
    17. Sandrine Jacob Leal & Mauro Napoletano & Andrea Roventini & Giorgio Fagiolo, 2016. "Rock around the clock: An agent-based model of low- and high-frequency trading," Journal of Evolutionary Economics, Springer, vol. 26(1), pages 49-76, March.
    18. Dilip B. Madan & Yazid M. Sharaiha, 2015. "Option overlay strategies," Quantitative Finance, Taylor & Francis Journals, vol. 15(7), pages 1175-1190, July.
    19. Philippe Charlot & Vêlayoudom Marimoutou, 2011. "Hierarchical hidden Markov structure for dynamic correlations: the hierarchical RSDC model (version révisée)," Working Papers hal-00605965, HAL.
    20. Hussain, Saiful Izzuan & Li, Steven, 2018. "The dependence structure between Chinese and other major stock markets using extreme values and copulas," International Review of Economics & Finance, Elsevier, vol. 56(C), pages 421-437.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:phsmap:v:285:y:2000:i:1:p:18-28. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.journals.elsevier.com/physica-a-statistical-mechpplications/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.