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

Nicole El Karoui (), Antoine Parent and Pierre-Charles Pradier
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Nicole El Karoui: Laboratoire de Probabilité, Statistique et Modélisation - LPSM

Documents de travail du Centre d'Economie de la Sorbonne from Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne

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 un 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)
JEL-codes: B13 B16 B31 C02 C62 D53 G13 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2022-10
New Economics Papers: this item is included in nep-his
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http://mse.univ-paris1.fr/pub/mse/CES2022/22019.pdf (application/pdf)
https://shs.hal.science/halshs-03815600

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)
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Persistent link: https://EconPapers.repec.org/RePEc:mse:cesdoc:22019

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