by Pierre Devolder

1. Institut de Statistique, Biostatistique et Sciences Actuarielles
RISK MODELLING:
Is Finance compatible with
Mathematics ?
Prof. Pierre DEVOLDER
UCL

2. Evolution of Interest rates (UK)
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3. STORY OF A BELGIAN STOCK …
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4. « Prediction is very difficult, especially
about the future. … »
Niels BOHR
( 1885- 1962)
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5. Everything started with games ….
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6. Blaise PASCAL Pierre de FERMAT
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7. A GOOD EXERCISE FOR TONIGHT….
You throw 2 dices and you add the values
obtained
What is the most likely result ?
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8. Insurance has been the next step
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9. GAMES INSURANCE
LAW OF LARGE NUMBERS
PROBABILITY THEORY
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10. Risk .. Or … uncertainty ???
To preserve the distinction between
measurable uncertainty and an
unmeasurable one we may use the term
“risk” for the former and the term
“uncertainty” for the latter.
( Knight, 1921 )
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11. Risk and finance
Does financial risk really exist ??
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12. RATING AGENCY
After 1 year After 6 years
AAA 0% 0,34%
AA+ 0,01% 0,49%
AA 0,03% 0,66%
A 0,07% 1,06%
BBB+ 0,12% 1,74%
BBB- 0,42% 4,94%
BB+ 0,75% 10,65%
junk
B- 11,69% 35,58%
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13. Risk Management
BASEL 2 / SOLVENCY 2 :
Probability of ruin less than 0.5% … ???
… 200 years of consistent experience ???
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14. The Gaussian Legend
The normal distribution .. is not a religion …
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15. The danger of correlation
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16. Finance and Neural Networks
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17. Finance and Quantum Mechanics
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18. You have to take risks. We will only understand
the miracle of life fully when we allow the
unexpected to happen.
Paulo COELHO
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