Theory of Financial Risk and Derivative Pricing

Risk control and derivative pricing have become of major concern to financial institutions. The need foradequate statistical tools to measure and anticipate the amplitude of the potential moves of financialmarkets is clearly expressed, in particular for derivative markets. Classical theories, however, are basedon simplified assumptions and lead to a systematic (and sometimes dramatic) underestimation of realrisks. Theory of Financial Risk and Derivative Pricing summarises recent theoretical developments, someof which were inspired by statistical physics. Starting from the detailed analysis of market data, one cantake into account more faithfully the real behaviour of financial markets (in particular the ‘rare events’)for asset allocation, derivative pricing and hedging, and risk control.