Chapter 6. Actuaries' Evaluation of the Utility of Financial Economics

SHANE WHELAN, FSAI, FSA, FFA, PhD

Lecturer in Actuarial Science, School of Mathematical Sciences, University College Dublin, Ireland

Abstract: Actuaries have priced and managed risk, including investment risk, since long before financial economics was identified as a separate discipline. Actuaries appraised the usefulness of the key insights in financial economics almost as soon as they were made—sometimes even before they were made by financial economists. Actuaries' value system, aligned with that of other market practitioners, came to quite a different evaluation than that given in conventional histories of financial economics.

Keywords: financial economics, history of financial economics, actuarial science, actuaries, asset pricing models, option pricing, mathematical finance, efficient market hypothesis, corporate finance, pension funds, mark-to-market

C. P. Snow (1959) drew attention to "two cultures," the sciences and the humanities, arguing that their lack of mutual understanding and respect was detrimental to human development. The unhelpful division certainly existed after his 1959 Rede lecture when literary intellectuals took exception to his characterization of them as "natural Luddites," indifferent or inimical to scientists who "have the future in their bones" (Kimball, 1994).

Of considerably less significance, though more delineated, are the two distinct cultures that take the study of the capital markets ...

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