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Teaching Reciprocity as the Foundation of Financial Economics

  • Timothy Johnson
Chapter

Abstract

The financial crises that have occurred since 2006 have been associated with a degradation in financial ethics. Since the teaching of derivative pricing is often undertaken in the context of abstract mathematics, the question arises of the role of mathematics in supporting financial ethics. At the heart of the Fundamental Theorem of Asset Pricing, the foundational theory of mathematical approaches to derivative pricing, is the concept of reciprocity. This chapter shows how reciprocity was reliant upon the emergence of probability theory before 1700, where a risk-less profit was seen as illicit. The chapter finishes with a discussion of how this ethical approach to financial economics is presented to undergraduate and, more advanced, post-graduate students.

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Copyright information

© The Author(s) 2018

Authors and Affiliations

  • Timothy Johnson
    • 1
  1. 1.School of Mathematical and Computer SciencesHeriot-Watt UniversityEdinburghUK

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