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Archive for October 2011

Mathematically detecting bubbles before they burst

Predicting economic crashes for more stable economies

And we’re not talking figuratively. From the dotcom bust in the late nineties to the housing crash in the run-up to the 2008 crisis, financial bubbles have been a topic of major concern. Identifying bubbles is important in order to prevent collapses that can severely impact nations and economies.

A paper published this month in the SIAM Journal on Financial Mathematics addresses just this issue. Opening fittingly with a quote from New York Federal Reserve President William Dudley emphasizing the importance of developing tools to identify and address bubbles in real time, authors Robert Jarrow, Younes Kchia, and Philip Protter propose a mathematical model to detect financial bubbles. Read the rest of this entry »

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