Statistics and the Trading of Options Per Mykland University of Chicago                  Abstract:  The recent growth of derivative securities -- options, swap and similar instruments -- has inspired substantial work on inference for time-dependent data. However, there is a lack of connection between the statistical methods and the presumed application, namely, the regulation, pricing and trading of derivative securities. This activity is mostly carried out without reference to historical data. This talk reviews the background for this phenomenon, and explores  recent results on how to incorporate statistical analyses into valuations.  Most typically, a (confidence, credible, or prediction) set is created on the basis of statistics, and then trading strategies can be found that remain solvent if the set covers the parameter or the outcome.  This has the advantage of separating the statistical and the financial engineering aspects of the problem. The approach is particularly useful for setting regulatory bounds and monitoring mechanisms, and for creating exit strategies which are less damaging than wholesale liquidation.  It also sets constraints on derivatives prices.We also discuss downsides and alternatives to this approach.