The end of the risk-free rate

Damiano Brigo, Gilbart professor of financial mathematics at King’s College, London, talks to Alexander Campbell

In his corner study on the fifth floor of King’s College, London, Damiano Brigo is unsettled – and only partly because he’s still getting used to the shift from the City to academia. His main concern is that the financial crisis has destroyed well-accepted concepts central to quantitative theory and derivatives pricing.

“Anything can default,” he says. “All the theory of valuation at the moment is based on the existence of a risk-free asset to be associated with the basic pricing measure. If