Abstract: In the early 70’s, Black and Scholes introduced the now famous no-arbitrage based techniques for pricing exotic financial securities. This led financial mathematics to move away from business and economics departments to mathematics and engineering. Around the same time, Monte Carlo methods (roughly – throwing darts to approximately measure areas of regions, but through fancy computer algorithms) were expanding their utility beyond physics and other sciences to engineering and business applications. The two met – some say that the resulting marriage was preordained in the no-arbitrage principle.
So this talk is about love, marriage, destiny and lots of money, with a little bit of tragedy in the form of the last financial crisis.
If time permits I will also discuss applications of the appropriately termed multi-armed bandit techniques, popular in online learning, to Monte Carlo based financial portfolio risk measurement.
