Research and Presentations of Prof. Stutzer


Here lies an index to buried works of minor interest:




In the past, my chief research interests focused on applications of the seemingly physical concept of Entropy, to very practical (albeit seemingly unrelated) problems in


(1) Valuation of Derivative Securities


(2) Statistical Model Parameter Estimation and


(3) Portfolio Choice



Those seeking a brief survey of some of this hard academic stuff might prefer the short-but-still-abstruse survey I co-authored in the Encyclopedia of Quantitative Finance. I am still active in this area, and serve on the organizational committee for annual conferences devoted to applications of entropic reasoning sponsored by the Info-Metrics Institute


But recently, I have focused attention on counterintuitive statistical properties of gambling and investment returns (are they really much different??). My goal is to help both gamblers and investors better understand the properties of long-term activity, such as retirement investing.




I call this area counterintuitive investment knowledge. Representative papers are our award-winning work The Misuse of Expected Returns or its webinar, and my paper about the Parrondo Paradox. This paradox starts with a "game" which is more likely to lose money than make it. Now suppose you alternate play between that "game" and another losing game, perhaps identical to the first. The paradox is that alternating play between the two, if done correctly, can wind up more likely to make money than lose it! Prior to my work, examples of the paradox were seemingly unrelated to standard models of investment and gambling, so the conventional wisdom was that this paradox could not arise in those practical settings. I proved otherwise, in two papers, e.g. see my article A Simple Parrondo Paradox. My colleague Sue Jung Grant and I also conducted survey research establishing that the paradox surprises skilled individuals, too




Quantitative modeling of loan defaults has been a (likely overemphasized) factor contributing to the Financial Crisis of 2007-8. Our Info-Metrics Institute is working to improve those statistical models.


You may view a presentation I made at one of our conferences, commenting on some good, recent default models. Here are the slides.


For you coffee-stained Quants out there, I modified Merton's celebrated ICAPM to incorporate effects caused by the secular growth of institutional investing (i.e. mutual funds, pensions, personal wealth advisors, etc.). I showed that the controversial "Fama-French 3 Factor Model" of expected stock returns may be explained by this modification, but if so, there is no reason to use their multifactor model (or others!) for fund performance evaluation.


You may view my equation-filled rant on this slide show.


I spent a few intense weeks developing the outlook for inflation down the road. The Federal Reserve has been a de-facto printing press for funds used to buy Treasury securities and mortgage-backed securities. These purchases have created an enormous overhang of bank reserves, which could create an explosion of spendable funds and subsequent inflation, if and when the banks lend these reserves out.


You may view my generally dull but occasionally witty slide show, titled Whither Inflation


Economics Prof. Martin Boileau and I presented a public talk about the ideas and impacts of Nobel Laureate Milton Friedman. Check out the slide show: Behind Every Politician is a Dead Economist


I presented some survey research about the Parrondo Paradox in gambling and investment -- a must see for those of you interested in the power of diversification to improve matters -- at an international conference in Halifax. Check out the slide show: Is the Parrondo Paradox a Paradox?


I spoke to our alumnae at an event held during December 2010, at Alliance Bernstein's headquarters in Manhattan. At the time, there was a lot of controversy about whether or not the government should take additional "stimulus" and/or monetary spending. The slide show presents my (negative!) views on that.