Learning, Investments And Derivatives
The recent crisis and the following flight to simplicity put most derivative businesses around the world under considerable pressure. The authors argue that the traditional modeling techniques must be extended to include product design. They propose a quantitative framework for creating products which meet the challenge of being optimal from the investors' point of view while remaining relatively simple and transparent. In the last few decades, the world of financial derivatives experienced a true explosion in the development of quantitative methods. Remarkably, very little of that development went into supporting the process of product innovation and structuring - the cornerstone of every derivative business! Compared to modeling, which continues to attract most quantitative effort, product innovation remains essentially a form of art.