The leptokurtic crisis and the discontinuous turn in financial modelling

Christian Walter ()

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Abstract: Heterodox economics has, since its inception, stressed the extreme importance of financial crises to understand the nature of finance. Heterodox modelling and heterodox economics were in line with their objective: a critical posture of the neoclassical finance arising from orthodox financial theory. Two distinct research programmes were established in financial modelling to tackle the leptokurtic issue: the first Mandelbrot programme based on stable Levy processes and the alternative non-stable Levy processes approach based on Merton's view. This chapter argues that some of the key differences between the competitive representations of financial uncertainty can be illuminated by reference to a familiar debate in philosophy over the principle of continuity. It also argues on the contrary that the divergent positions about the mind-set behind the price changes implicate entirely different views of what is important to capture and how to model it.

Date: 2018
Note: View the original document on HAL open archive server: https://hal.science/hal-04560385v1
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Published in Isabelle Chambost; Marc Lenglet; Yamina Tadjeddine. The Making of Finance. Perspectives from the Social Sciences, Routledge, 2018, 9781351016117. ⟨10.4324/9781351016117-10⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04560385

DOI: 10.4324/9781351016117-10

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