>> I mean, is there room for a "theory", in the sense of Black and Scholes? absolutely, I really think there is, many are working hard on this sort of theories

<< It's a very similar picture to the situation in compiler theory: new languages come up all the time, but the construction of a compiler is very much a streamlined process. >>As long, people in the quantitative finance sector aims their efforts and constructing 'models' in the following areas:1. Forecasting future prices, returns volatility, etc - models and simulations 2. Risk-neutral, arbitrage-free - pricing models and theories.3. Market-making - strategies and models.4. Structured products - inventing new derivatives for optimal hedging/betting 5. Have I forgotten anything? I totally agree with Reza; there is still a lot to be done, although it is mostly kind of terrestrial endeavors which reflect the regime paradigms in quantitative finance. In other words, as long as the undue exertions invested in all the four areas mentioned above, I hardly believe there are BIG THINGS to come. Indeed though, it is possible to refute the above statement I copied and pasted!

"In other words, as long as the undue exertions invested in all the four areas mentioned above, I hardly believe there are BIG THINGS to come. Indeed though, it is possible to refute the above statement I copied and pasted!" That was very well said, David.

Things you can do to make life more difficult:1) introduce jump processes.2) introduce a volatility surface.3) use power-tailed distributions, rather than exponential tailed distributions.However, I've found a lot of this stuff to be computationally intensive due to a PIDE rather than a PDE.

QuoteOriginally posted by: rags"Things you can do to make life more difficult"I think that the usefullness of complex tools usually overshadows their inherent difficulty...Quote"However, I've found a lot of this stuff to be computationally intensive due to a PIDE rather than a PDE.I agree, and one of the most dramatic breakthroughs in the field will probably come from computational probability and/ or stats, as far as it would provide all practitioners / researchers with effective tools to deal with the 'difficult' (but necessary) theoretical formulations of the problems of interest. And as Collector put it : the BIG^3 things are still to come!By the way, Collector, I found you very very impressive in the comics ! (see Wilmott Magazine : 'negative vol...' ) ....ummmm, where did you hired your private jet pilot?

Johnny wrote:QuoteIn this sense the derivatives business is no longer a young industry driven by advances in intellectual property, but a mature manufacturing business. All leading derivatives houses have access to very similar pools of intellectual property. Each new intellectual advance is hard won, expensive and small; a classic case of severely diminishing returns to intellectual property. Just like any other mature manufacturing business, competitive advantage comes from more prosaic issues, such as getting your organisational structure right, keeping costs under control etc etc.. If you want to think about the future of the derivatives business, don't think in terms of glamorous sectors like BioTech. Think in terms of steel or car manufacturing in the 1970's and 1980's.My question then is.....can I add more to my present value by riviting a drink holder to my bu.......no, no, I can't say it. - James