Louis Bachelier's Théorie de la spéculation: The missing piece in Walras' general equilibrium

Nicole Karoui, Antoine Parent and Pierre-Charles Pradier
Additional contact information
Nicole Karoui: LPSM (UMR_8001) - Laboratoire de Probabilités, Statistique et Modélisation - SU - Sorbonne Université - CNRS - Centre National de la Recherche Scientifique - UPCité - Université Paris Cité

Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) from HAL

Abstract: We propose a revisited view of Louis Bachelier's contribution to economic analysis. Conventional wisdom presents Bachelier as the founding father of modern financial theory. We show that Bachelier's work is constructed to respond to a gap in the Walrasian general equilibrium, where the options market is verbosely introduced but not modeled. By providing a price formation theory for the missing options market, Bachelier undoubtedly presents himself as the heir apparent of the mathematical economics tradition founded by Walras. Indeed, Bachelier's methodological stance is clearly formed on the "rational method" of Walras, proceeding by mathematical demonstration from postulates that we make explicit. We show additionally how Walras and Bachelier in pre-WW2 France reached to the same audience. We propose to name this augmented general equilibrium model the Walras-Bachelier model of intertemporal general equilibrium in the presence of risk. This theory prefigures the Arrow-Debreu model, with some differences which we make clear.

Keywords: General equilibrium; Financial markets; Option pricing; Bachelier; Walras (search for similar items in EconPapers)
Date: 2022-10
New Economics Papers: this item is included in nep-his and nep-hpe
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-03815600v1
References: View references in EconPapers View complete reference list from CitEc
Citations:

Published in 2022

Downloads: (external link)
https://shs.hal.science/halshs-03815600v1/document (application/pdf)

Related works:
Working Paper: Louis Bachelier's Théorie de la spéculation: The missing piece in Walras' general equilibrium (2022)
Working Paper: Louis Bachelier's Théorie de la spéculation: The missing piece in Walras' general equilibrium (2022)
Working Paper: Louis Bachelier's Théorie de la spéculation: The missing piece in Walras' general equilibrium (2022)
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:hal:cesptp:halshs-03815600

Access Statistics for this paper

More papers in Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) from HAL
Bibliographic data for series maintained by CCSD ().