the scope of this approach. inflationlinked swaps, for example, allow the computation of an inflation curve similar to the yield curve, providing information on the expected path of inflation. market participants ’ beliefs will be reflected in investors ’ attitude towards risk. a widely regarded measure is the bank for international settlements ’ risk appetite indicator, which is derived from the differences between two distributions of returns : one implied by option prices, the other based on actual returns estimated from historical data. here, there is the question of finding an appropriate model and a fitting distribution. i shall return to the question of distributional assumptions in a few seconds. risk indicators may help us to determine, for example, whether historically low spreads on emerging market bonds at one period of time or low corporate bond spreads in another reflect market participants ’ increased willingness to take risks. taking risks without an appropriate premium, might endanger the ability of some entities to honour their obligations. this leads us directly to the field of financial stability which is a major concern for a central bank, both from a monetary and a real economy perspective. a stable financial system is of utmost importance for monetary policy, ensuring that monetary impulses have a reliable and predictable impact on the economy as a whole. 1 / 2 the various transmission channels in the financial sector are vital for the economy as a whole. a stable financial system is able to absorb financial or business cycle shocks even if and when they exceed the capacity of the individual market participants. on the other hand, major price shocks or a credit crunch could harm the economic allocation mechanism which may cause severe real losses in production and growth. moreover, the threat of crisis - driven excessive price movements on capital markets may push up risk premiums to very high levels. and this may further disturb the allocation mechanism. with regard to professor mandelbrot ’ s achievements in the analysis of financial markets, let me now comment a little further on the close relationship between risk models for the analysis of financial stability and the distributional assumptions for financial data. the crucial question is : which distributions fit financial data? since the work of bachelier in 1900, the normality assumption seems to have been the dominant assumption for the last century, and that is still the case today, at least for many practitioners. but, in the early 1960s professor mandelbrot observed the behaviour of changes of speculative prices, which is much more erratic than the normality assumption would imply. in 1963, professor mandelbrot wrote in the journal

of business that " the empirical distributions of price changes in a speculative market are usually too peaked to be viewed as samples from gaussian population. … there are typically so many outliers. … i replace the gaussian distribution throughout by l - stable ( stable paretian ) laws. " it is only from this point of view that we are able to understand what noah and joseph have to do with financial markets, as professor mandelbrot explained yesterday in his lecture in frankfurt. studying mandelbrot influences our understanding of financial markets. he warns that a restrictive distributional assumption for financial data – namely, the normality assumption – may lead to the underestimation of risk in the financial markets. this conference will discuss new theoretical developments in professor mandelbrot ’ s approach and present new applications in the fields of risk analysis, exchange rates and portfolio management. therefore, the conference will make a contribution to the ongoing development on professor mandelbrot ’ s view on financial markets. moreover, the conference aims to bring these highly academic issues closer to practitioners. i wish every participant an exciting and stimulating time during the conference. 2 / 2