Toxic Assets and Financial Crises

Abstract

This talk will begin with a brief introduction to risk-neutral pricing of financial derivatives—such as bonds, options, and credit default swaps—using the Black-Scholes-Merton math model. Using these ideas, Chadam will then explore areas of concern in the equity and bond markets. In particular, he will discuss insider trading in the recent sale of H. J. Heinz, and examine the topics of exchange-traded funds (ETFs) and emerging instabilities in bond markets. If time permits, Chadam will discuss how mathematical methods might be used to understand contagion in networks of financial institutions, the functioning of dark markets and high-frequency trading, and commodity markets and sustainability