Tuesday's seminar

[CM ICTP - Trieste]

JOINT ICTP/SISSA STATISTICAL PHYSICS SEMINAR





Tuesday, 17 March    -    12:30 hrs.





Seminar Room - ICTP Leonardo Building - 1st floor





M. MARSILI    ( The Abdus Salam ICTP )



"Typical properties of asset pricing theory in complex markets"





Abstract



The expansion in the diversity of instruments in financial markets,  
according to Asset Pricing Theory (APT), provides more means for risk  
diversification, and brings the syetem closer to the limit of  
"complete markets", in which risk can be eliminated altogether.

The proliferation of credit derivatives in the past decade, and the  
recent crisis, have raised serious doubts on this view, mostly  
because of market imperfections, i.e. deviations of real markets from  
the ideal conditions postulated in APT.

In this talk, I will first review the main insights of APT. Then I  
will show that one can use the tools of statistical physics of  
disordered systems to characterize the typical properties of a large  
random market. This suggests that, even in the idealized market  
described by APT, the proliferation of financial instruments erodes  
systemic stability and it drives the market to a critical state  
characterized by large susceptibility.