Sunday 1 November, 9.45am until 10.30am, Lecture Theatre 1 Breakfast Banter
We are living through the most severe recession since the 1930s, a recession that is understood by many as having its roots in the activity of financial services.
It is still unclear how the fall out of the credit crunch will affect financial activity in the years to come. George Soros, echoing the views of Warren Buffett, has famously described Credit Default Swaps as financial weapons of mass destruction. The world’s governments are looking to regulate derivative trading, which is deemed too risky to be left to merely the self-interest of shareholders to monitor.
While blaming the banks for taking on too much risk, it is easy to forget that over recent decades the role of the world’s financial centres has increasingly involved the better management of risk. The length and stability of the global economic boom ending in the credit crunch was in no small part attributed to the ability of these financial centres to help businesses generate higher returns for lower levels of risk. Those days are gone.
Financial products are designed to transfer risk from businesses to the financial sector, or to reallocate risk more efficiently within the market. So a financial intermediary – for a fee – will assume or pass on to others the risks of the volatile oil markets, leaving airlines to concentrate on flying goods and passengers around the world. Has this type of activity now been discredited altogether? Have the legitimate business drivers behind financial activity been swamped by financial activity with no purpose? As Gao Xiqing, an adviser to the Chinese premier, remarked in 2000, ‘if you look at every one of these [derivative] products, they make sense. But in aggregate, they are bullshit’. Were we merely too ambitious in the pretence that financial engineers could not only hedge away the risk of volatile commodities markets, but also hedge away the systemic risk of a global slowdown?
|Dr Paul Wilmott|
researcher and educator, finance and risk management; author, editor and consultant, quantitative finance and mathematics; founding partner, Caissa Capital hedge fund; founder, Applied Mathematical Finance
financial services professional; researcher and writer, emerging economies and quantitative finance
The orthodox mathematical model took no account of reality. The new George Soros institute should bring back some sanity.Anatole Kaletsky, The Times, 28 October 2009
'The Duke of York said recently that the bonuses are minute in the scale of things, but that misses the point. It's not the size of the bonuses that matters it's the behaviour of the bankers that results from these bonuses.'Stuart Simpson, Independent Independent Minds, 28 October 2009
The efficient market hypothesis holds that financial markets tend towards equilibrium and accurately reflect all available information about the future. Deviations from equilibrium are caused by exogenous shocks and occur in a random manner. The crash of 2008 falsified this hypothesis.George Soros, Financial Times, 25 October 2009
Don Putnam, designer of investment products since the 1970s, points to the most fundamental of lessons learnt from last year’s global financial implosion: markets are “defined by their participants as much as they are by their mechanics” and it is people’s motivations that ultimately count.John Authers, Financial Times, 30 September 2009
Many appear to think that the increasing complexity of financial products is the source of the world financial crisis. In response to it, many argue that regulators should actively discourage complexity.Robert Shiller, Financial Times, 28 September 2009
Few economists saw our current crisis coming, but this predictive failure was the least of the field’s problems. More important was the profession’s blindness to the very possibility of catastrophic failures in a market economy.Paul Krugman, New York Times, 2 September 2009
We still lack a conclusive theory about the global financial crisis, but we know a lot more than we did in August 2007. We know, for example, that simple monocausal explanations are at best insufficient and most likely paranoid and lazy.Wolfgang Münchau, Financial Times, 23 August 2009
Over the past decade, and increasingly since the crash, Wilmott has cultivated a loyal following of truth-seeking converts from the failed school of thought that the entire world can be turned into Greek symbols, plugged into equations, priced and predicted.Matthew Philips, Newsweek, 29 May 2009
Gillian Tett, Little, Brown, 30 April 2009
Mathematical models are a powerful way of predicting financial markets. But they are fallibleThe Economist, 22 January 2009
A spectre is haunting Markets – the spectre of illiquidity, frozen credit, and the failure of financial models.Paul Wilmott, Paul Wilmott's blog, 8 January 2009
An accessible introduction to the classical side of quantitative finance specifically for university students. Iincludes carefully selected chapters to give the student a thorough understanding of futures, options and numerical methods.
Paul Wilmott, John Wiley & Sons, 29 June 2007
Daniel Ben-Ami, John Wiley & Sons, 9 March 2001
Wilmott is the leading resource for the Quantitative Finance community; presenting the very latest thinking in derivatives, risk modeling and quantitative techniques, and bringing together both academics and practitioners to further develop these ideas, share information, and critique theory through practice. Discussion occurs through a very active online forum.wilmott.com