Emerging Directions in Quantitative Finance
Summary
The document surveys proposed areas of newer work in quantitative finance, contrasting familiar option-pricing and risk models with research questions that were attracting attention at the time. It mentions a speculative physical analogy for stock markets and its claimed implications for option prices, but gives no derivation or evidence to evaluate that proposal.
The concrete research directions are Ross’s Recovery Theorem, which proposes recovering the physical probability measure from option prices under certain conditions, and work on optimal trading, market impact, and order-book dynamics. The responses also point readers toward a peer-reviewed journal as a source of research. These are pointers and brief characterizations rather than a technical account of any method. The document does not establish that the field is stagnant or assess the validity, practical usefulness, or subsequent status of the ideas it names.
Key ideas
- The document presents recovery of the physical measure from option prices as a research topic.
- Optimal trading, market impact, and order-book dynamics are identified as active areas of study.
- A proposed physical model analogy for markets is mentioned, but its claims are not substantiated here.
- The discussion offers research directions rather than a comparative evaluation of their results.
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Full text
# Any New Discoveries in Quantitative Finance? # Any New Discoveries in Quantitative Finance? It seems like the field has become stagnant in the decades following the enormously successful and influential Black Scholes model. (The original paper has been cited a staggering 25,000 times - more than ANY economics paper, by far.) There is also the CAPM and GARCH models, but those were decades ago. Now we have Black Scholes type models for every type of option under every conceivable condition. We have multiple derivations of these formulas (forier series, closed form, etc) . So what is next? The only new idea is http://en.wikipedia.org/wiki/User:Stockequation/sandbox which makes the jump from the stock market being a statistical system to a mechanical/physical one, like general relativity. It's essentially a 1-d ADS/CFT applied to the stock market and it generates fat tail option prices and vol. smile ## Answer by Drew (score 6) https://quant.stackexchange.com/a/16224 Ross had an interesting paper thats making the rounds: The Recovery Theorem. He claims that the physical measure can be recovered from option prices under certain conditions. I think that's getting a lot of academic interest recently. ## Answer by lehalle (score 0) https://quant.stackexchange.com/a/16257 These years, The new frontier has been around optimal trading, market impact and orderbook dynamics. They are plenty of sources around, one of them being this bi-yearly conference. You have all the slides on the web site: Market Microstructure: Confronting many Viewpoints. The next challenge is to link previous quant and economic knowledge with micristructure. ## Answer by Kyle Balkissoon (score -1) https://quant.stackexchange.com/a/16245 http://www.algorithmicfinance.org/ It's a free peer reviewed journal, depending on your definition of discovery you might find interesting tidbits there.
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