Louis Bachelier's Theory of Speculation: The Origins of Modern Finance by Louis BachelierLouis Bachelier's Theory of Speculation: The Origins of Modern Finance by Louis Bachelier

Louis Bachelier's Theory of Speculation: The Origins of Modern Finance

byLouis Bachelier

Hardcover | September 25, 2006

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March 29, 1900, is considered by many to be the day mathematical finance was born. On that day a French doctoral student, Louis Bachelier, successfully defended his thesis Théorie de la Spéculation at the Sorbonne. The jury, while noting that the topic was "far away from those usually considered by our candidates," appreciated its high degree of originality. This book provides a new translation, with commentary and background, of Bachelier's seminal work.


Bachelier's thesis is a remarkable document on two counts. In mathematical terms Bachelier's achievement was to introduce many of the concepts of what is now known as stochastic analysis. His purpose, however, was to give a theory for the valuation of financial options. He came up with a formula that is both correct on its own terms and surprisingly close to the Nobel Prize-winning solution to the option pricing problem by Fischer Black, Myron Scholes, and Robert Merton in 1973, the first decisive advance since 1900.


Aside from providing an accurate and accessible translation, this book traces the twin-track intellectual history of stochastic analysis and financial economics, starting with Bachelier in 1900 and ending in the 1980s when the theory of option pricing was substantially complete. The story is a curious one. The economic side of Bachelier's work was ignored until its rediscovery by financial economists more than fifty years later. The results were spectacular: within twenty-five years the whole theory was worked out, and a multibillion-dollar global industry of option trading had emerged.

Mark Davis, Professor of Mathematics at Imperial College London, has written three books on stochastic modeling and control, most recently Markov Models and Optimization. Alison Etheridge, Professor of Probability at the University of Oxford, is the author of A Course in Financial Calculus and Introduction to Superprocesses.
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Title:Louis Bachelier's Theory of Speculation: The Origins of Modern FinanceFormat:HardcoverDimensions:208 pagesPublished:September 25, 2006Publisher:Princeton University PressLanguage:English

The following ISBNs are associated with this title:

ISBN - 10:0691117527

ISBN - 13:9780691117522

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Table of Contents

Foreword vii
Preface xiii
Chapter One: Mathematics and Finance 1
Chapter Two: Théorie de la Spéculation 15
Chapter Three: From Bachelier to Kreps, Harrison and Pliska 80
Chapter Four: Facsimile of Bachelier's Original Thesis 116
References 183

Editorial Reviews

"Louis Bachelier's thesis is a seminal work, and to have it readily accessible will be a most valuable contribution to the field. This book represents a timely look back at the scientific origins of the enormously important modern-day finance industry."-Chris Rogers, University of Cambridge, coauthor of Diffusions, Markov Processes and Martingales, Volumes 1 and 2