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Computational theories and techniques in finance

Computational theories and techniques in finance Risk and Decision Analysis 2 (2010/2011) 181–183 DOI 10.3233/RDA-2011-0042 IOS Press Computational theories and techniques in finance C. Tapiero Futures and options have unleashed the value of future states into our present. They have augmented the supply and the liquidity of money, the availability of credit and have contributed immensely to financial exchanges and the development of financial markets. We owe therefore great thanks to the extraordinary contributions of economists such as Kenneth Arrow, Gerard Debreu, Lucas, Fisher Black, Myron Scholes and Robert Merton. The underlying state preference theories and their engineered pricing models have raised numerous challenges to computational theories and techniques seeking to bridge economic science with its practical use – even though its application might be less than perfect. While financial modeling requires structured stochastic models with specific mathematical properties, theoretically justifiable within the Arrow–Debreu state preference theory, its application to real problems can only be assessed ex-post – whether it works or it does not. We are all aware that many underlying assumptions of financial models may be wrong and at times leading to contradictions to finance’s fundamental theory. For example, questions arise regarding: • The predictability of future states and “the normality of http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Risk and Decision Analysis iospress

Computational theories and techniques in finance

Risk and Decision Analysis , Volume 2 (4) – Jan 1, 2011

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Publisher
IOS Press
Copyright
Copyright © 2011 by IOS Press, Inc
ISSN
1569-7371
eISSN
1875-9173
DOI
10.3233/RDA-2011-0042
Publisher site
See Article on Publisher Site

Abstract

Risk and Decision Analysis 2 (2010/2011) 181–183 DOI 10.3233/RDA-2011-0042 IOS Press Computational theories and techniques in finance C. Tapiero Futures and options have unleashed the value of future states into our present. They have augmented the supply and the liquidity of money, the availability of credit and have contributed immensely to financial exchanges and the development of financial markets. We owe therefore great thanks to the extraordinary contributions of economists such as Kenneth Arrow, Gerard Debreu, Lucas, Fisher Black, Myron Scholes and Robert Merton. The underlying state preference theories and their engineered pricing models have raised numerous challenges to computational theories and techniques seeking to bridge economic science with its practical use – even though its application might be less than perfect. While financial modeling requires structured stochastic models with specific mathematical properties, theoretically justifiable within the Arrow–Debreu state preference theory, its application to real problems can only be assessed ex-post – whether it works or it does not. We are all aware that many underlying assumptions of financial models may be wrong and at times leading to contradictions to finance’s fundamental theory. For example, questions arise regarding: • The predictability of future states and “the normality of

Journal

Risk and Decision Analysisiospress

Published: Jan 1, 2011

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