5.

The Importance of Financial Theory

 Mathematical Finance
• The world will never be the same again because of the
development of mathematical finance
• The theory of allocation of scarce resources was not
understood by most people in early 20th century
 Behavioral Finance
• Behavioral finance is the salvation of mathematical finance,
for it explains the frictions that inhibit it.
• Hardcore mathematical finance people have a tendency to
be irrelevant.
• Law schools are as necessary as the math, finance people.