Paolo Guasoni, “Stochastics and market frictions: An overview”

Wednesday October 19 2016
Scuola Normale Superiore
Aula Mancini

Paolo Guasoni
Dublin City University


In the last decades Finance theory has benefited from its affinity with the theory of Stochastic Processes, in particular martingales and stochastic control. These theories have subtly influenced the development of Finance along the path in which they were most successful, thereby disregarding market frictions such as trading costs, incomplete information, and incentives. This talk outlines recent developments in stochastic methods for models with frictions, how they undermine several tenets of portfolio theory, and how they stimulate new approaches to stochastic control. The talk concludes with a mention of frictions arising from mortality and operational risk.