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Rothschild Distinguished Visiting Fellow Lecture: Admitting Uncertainty: On the Role of Probability in Finance

Presented by: 
H Foellmer Humboldt-Universität zu Berlin
Date: 
Tuesday 9th December 2014 - 16:00 to 17:00
Venue: 
INI Seminar Room 1
Abstract: 
Over the last decades, advanced probabilistic methods have played an increasing role in Finance, both in Academia and in the financial industry. In view of the recent financial crisis it has been asked to which extent the use of such methods has been part of the problem. We review some of the arguments and then focus on the pervasive issue of model uncertainty, or "Knightian uncertainty". This will be illustrated by the interplay between "historical measures" and "martingale measures" in the standard framework of Mathematical Finance, by strictly path-wise arguments that eliminate probabilistic arguments altogether, and by the quantification of financial risk in terms of monetary risk measures.
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University of Cambridge Research Councils UK
    Clay Mathematics Institute London Mathematical Society NM Rothschild and Sons