Modern Finance Theory Within One Lifetime

Abstract

We meet to celebrate the century birthday of Louis Bachelier’s Paris Ph.D. thesis, Théorie de la Spéculation. One hundred is a good round number. However, the text of my sermon today is about the genesis of the present modern theory of finance in one academic lifetime — a rare phenomenon in the annals of any science. Although Bachelier’s basic breakthrough came in 1900, its scientic beginning must be placed at about 1950. Science is public knowledge. The treasures that were in Gauss’s private notebooks were as if they never existed — until he released them in lecture or publication, or until they were later quasi-independently discovered by scholars other than Gauss. When a tree falls in a forest empty of observers or listeners, it is much as if no tree ever fell there at all.