The epistemology of modern finance

Xavier De Scheemaekere ()
Additional contact information
Xavier De Scheemaekere: Université libre de Bruxelles

The Journal of Philosophical Economics, 2009, vol. 2, issue 2, 99-120

Abstract: Modern finance is a social science where the complexity of mathematical models compares to that of physics. The aim of this paper is to provide a conceptual framework for the interpretation of mathematical models in finance, in order to determine the epistemological standards according to which financial theory must be assessed. The analysis enlightens the contrast between highly objective results and the radical uncertainty that governs the markets. The main contribution of the paper is to show that the reasons why finance models are relative and non-causal are deeply rooted in the nature of finance theory itself. An important consequence is that arbitrage-free model prices are reference prices and indicators of the economical features underlying mathematical models. As such, they can be used to structure and support final pricing and hedging decisions, but not to predict future market prices.

Keywords: epistemology; mathematics; modern finance; risk; uncertainty (search for similar items in EconPapers)
JEL-codes: G00 (search for similar items in EconPapers)
Date: 2009
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
http://jpe.ro/pdf.php?id=2865 (application/pdf)
http://jpe.ro/?id=revista&p=138 (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bus:jphile:v:2:y:2009:i:2:p:99-120

Access Statistics for this article

The Journal of Philosophical Economics is currently edited by Valentin Cojanu

More articles in The Journal of Philosophical Economics from Bucharest Academy of Economic Studies, The Journal of Philosophical Economics Contact information at EDIRC.
Bibliographic data for series maintained by Valentin Cojanu ().