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Summary of the article

Longin F. (2018) « Complexité sur les marchés financiers » published in Complexité et Organisations edited by Edgar Morin and Laurent Bibard, Eyrolles.

How to understand the complexity of the financial markets? Is it rather a matter of uncertainty or risk? If so, can the risk be measured?

Three methods make it possible to approach this complexity, through crises in particular: one comes from statistics with extreme value theory, the second from history and the third from simulation. Statistical and historical methods make it possible to identify stylized facts that are repeated during crises. The simulation approach with the SimTrade platform makes it possible to live from within the financial decisions made by individuals and the mechanisms of the financial markets. This methodological review is also an opportunity to discover that in finance, uncertainty and risk are not always where we would expect to find them...

The statistical approach based on the theory of extreme values

A statistical tool makes it possible to study the radical events affecting financial markets: extreme value theory. This theory focuses more particularly the minimum and maximum price variations (booms and crashes).

The historical approach

Many historians have been interested in stock market crises. In his book Manias, Panics and Crashes: A History of Financial Crises, Charles Kindleberger proposes an anatomy of financial crises in five stages: change, boom, euphoria, crisis and repulsion.

The simulation approach

Beyond the historical and statistical approaches, I contributed to the development of a third approach that, based on simulations, proposes to enter into a deep understanding of financial phenomena. It takes shape in the SimTrade teaching and research tool. This tool aims to understand the behavior of individuals in the financial markets.

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Read also:

The asymptotic distribution of extreme stock market returns

From VaR to stress testing : the extreme value approach

Beyond the VaR

See also:

Discover financial markets with SimTrade

Glossary of financial terms

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