Louis Bachelier's Theory of Speculation

<body stylesrc="../_private/template_title.htm" topmargin="10" leftmargin="10" bgcolor="#FFFFFF" link="#333366" vlink="#000000" alink="#000000"> <div align="left"> <table border="0" cellspacing="0" style="border-collapse: collapse" bordercolor="#111111" width="100%" cellpadding="0" id="table3"> <tr> <td width="780" align="center"> <div align="center"> <table border="0" cellpadding="5" cellspacing="0" height="206" style="border-collapse: collapse" bordercolor="#111111" width="100%" id="table4"> <tr> <td align="right" height="198" width="1%"> <p align="left"> <img border="0" src="../images/book_davis_and_etheridge_(2006).jpg" width="134" height="200"></td> <td valign="top" align="left" height="198"> <table border="0" cellspacing="1" style="border-collapse: collapse" bordercolor="#111111" cellpadding="0" id="table5"> <tr> <td colspan="3" width="0%"> <p class="book_title">Louis Bachelier's Theory of Speculation</td> </tr> <tr> <td width="1%" class="book_details_tags" valign="top" height="16" align="left"> <img border="0" src="../images/blank_2x2.gif" width="2" height="2"><img border="0" src="../images/blank_2x2.gif" width="2" height="2"></td> <td width="52%" class="book_details_tags" valign="top" height="144" align="left" rowspan="9"> <map name="FPMap6"> <area href="../main/ratings.htm" shape="rect" coords="73, 0, 165, 32"> </map> <img border="0" src="../images_title/davis_36.gif" usemap="#FPMap6" width="195" height="192"></td> <td class="book_details" height="112" align="center" width="50%" rowspan="7"> <map name="FPMap5"> <area target="_top" href="http://www.riskbook.com/link_topic/best_of_2006.htm" shape="rect" coords="0, 0, 124, 108"> </map> <img border="0" src="../images/best_of_award_2006.gif" width="125" height="109" usemap="#FPMap5"></td> </tr> <tr> <td width="1%" class="book_details_tags" valign="top" height="16" align="left"> </td> </tr> <tr> <td width="1%" class="book_details_tags" valign="top" height="16" align="left"> </td> </tr> <tr> <td width="1%" class="book_details_tags" valign="top" height="16" align="left"> </td> </tr> <tr> <td width="1%" class="book_details_tags" valign="top" height="16" align="left"> </td> </tr> <tr> <td width="1%" class="book_details_tags" valign="top" height="16" align="left"> </td> </tr> <tr> <td width="1%" class="book_details_tags" valign="top" height="16" align="left"> </td> </tr> <tr> <td width="1%" class="book_details_tags" valign="top" height="16" align="left"> </td> <td class="book_details" height="32" align="center" width="50%" rowspan="2"> </td> </tr> <tr> <td width="1%" class="book_details_tags" valign="top" height="16" align="left"> </td> </tr> </table> </td> </tr> </table> </div> <table border="0" cellpadding="10" cellspacing="0" style="border-collapse: collapse" bordercolor="#111111" width="468" id="table6"> <tr> <td> <script type="text/javascript"></script> <script type="text/javascript" src="http://pagead2.googlesyndication.com/pagead/show_ads.js"> </script> </td></tr> </table> <table border="0" cellpadding="5" cellspacing="0" style="border-collapse: collapse" bordercolor="#111111" width="100%" id="table7"> <tr> <td width="50%" valign="top"> <p align="left" class="body"><strong style="font-weight: 400">This is one of the most satisfying finance books I have ever read. If you have any interest in the historical origins of quantitative finance, don't waste your time reading my review. Just get a copy of this book.</strong></p> <table border="0" cellpadding="0" cellspacing="0" style="border-collapse: collapse" bordercolor="#111111" width="130" align="left" id="table8"> <tr> <td width="125"> <script type="text/javascript"></script> <script type="text/javascript" src="http://pagead2.googlesyndication.com/pagead/show_ads.js"> </script> </td><td width="5"> </td> </tr> </table> <p align="left" class="body"><strong style="font-weight: 400">The book is built around Louis Bachelier's 1900 doctoral thesis on speculation and options trading in the French government debt market. That thesis developed a mathematical theory for Brownian motion five years ahead of Einstein. It anticipated other results in stochastic calculus and quantitative finance. The most notable of these was the work of Black and Scholes. Every financial analyst knows the story of how Bachelier's thesis languished, hardly unknown outside mathematical circles for half a century, only to be rediscovered in time to shape modern options pricing theory.</strong></p> </td> <td width="50%" valign="top" class="body" rowspan="2"> <table border="0" cellpadding="0" cellspacing="0" style="border-collapse: collapse" bordercolor="#111111" width="100%" id="table9"> <tr> <td width="100%" bgcolor="#333366"> <p class="header_yellow" align="center">Contents</td> </tr> <tr> <td width="100%" class="explanatory_text"> <table border="1" cellpadding="0" cellspacing="5" style="border-collapse: collapse" bordercolor="#CCCCFF" bgcolor="#CCCCFF" width="100%" id="table10"> <tr> <td class="contents_expanded"> <p class="contents_compressed" style="margin-top: 4px; margin-bottom: 4px"> 1. Mathematics and finance<p class="contents_compressed" style="margin-top: 4px; margin-bottom: 4px"> 2. Theorie de la Speculation <p class="contents_compressed" style="margin-top: 4px; margin-bottom: 4px"> 3. From Bachelier to Kreps, Harrison and Pliska<p class="contents_compressed" style="margin-top: 4px; margin-bottom: 4px"> 4. Facsimile of Bachelier's original thesis </td> </tr> </table> </td> </tr> </table> <p align="left" class="body"><strong style="font-weight: 400">This book contains a facsimile of the original thesis as well as a new English language translation. What is truly wonderful about the book is the supporting narrative that traces the intellectual history of stochastic calculus and quantitative finance. This lays out all the seminal works, from predecessors of Bachelier of the 1800s to the formalization of the Fundamental Theorem of Asset Pricing in the late 20th century. But the book does more than that. It presents the interesting personalities behind those works and documents the interactions between them. You see, not only how ideas emerged, but how they migrated from one thinker to the next. Bachelier wrote his thesis; James Savage rediscovered his work and brought it to Paul Samuelson's attention; Samuelson was then working on options pricing, and he had Robert Merton helping him as a graduate student ... and so it goes. Samuelson, by the way, has contributed a foreword to the book that shares some fascinating anecdotes.</strong></p> <p align="left" class="body"><strong style="font-weight: 400">Are you still reading this review? I can't believe this! GO OUT AND BUY THE BOOK.</strong><b> [December 7, 2006]</b></p> <p align="center" class="body"> </p> </td> </tr> <tr> <td width="50%" valign="bottom"> <table border="0" cellpadding="0" cellspacing="0" style="border-collapse: collapse" bordercolor="#111111" width="100%" id="table11"> <tr> <td width="100%"> <script type="text/javascript"></script> <script type="text/javascript" src="http://pagead2.googlesyndication.com/pagead/show_ads.js"> </script> </td></tr> </table> </td> </tr> </table> </td> <td>  </td> </tr> </table> </div> <table border="0" cellpadding="10" cellspacing="0" style="border-collapse: collapse" bordercolor="#111111" width="100%" id="table12"> <tr> <td width="50%" bgcolor="#FFFFCC" align="center"> <table border="0" cellpadding="0" cellspacing="0" style="border-collapse: collapse" bordercolor="#111111" bgcolor="#FFFFCC" id="table13"> <tr> <td> <p class="body" style="margin-bottom: 6; margin-left:10"><b><font color="#333366" size="3">For related books, see sections:</font></b></p> <p class="bullet_line_space" style="margin-left: 10"> <img border="0" src="../images/bullet.gif" width="20" height="10"><a target="_top" href="../link_topic/history_histories.htm">History - Histories</a></p> <p class="bullet_line_space" style="margin-left: 10"> <img border="0" src="../images/bullet.gif" width="20" height="10"><a target="_top" href="../link_topic/financial_engineering_basic.htm">Financial Engineering - Basic Theory</a></p> <p class="bullet_line_space" style="margin-left: 10"> <img border="0" src="../images/bullet.gif" width="20" height="10"><a target="_top" href="../link_topic/financial_engineering_intermediate.htm">Financial Engineering - Intermediate Theory</a></p> <p class="bullet_line_space" style="margin-left: 10"> <img border="0" src="../images/bullet.gif" width="20" height="10"><a target="_top" href="../link_topic/financial_engineering_theory.htm">Financial Engineering - Advanced Theory</a></p> <p class="bullet_line_space" style="margin-left: 10"> <img border="0" src="../images/bullet.gif" width="20" height="10"><a target="_top" href="../link_topic/math_probability.htm">Math - Probability</a></p> <p class="bullet_line_space" style="margin-left: 10"> <img border="0" src="../images/bullet.gif" width="20" height="10"><a target="_top" href="../link_topic/math_stochastic_calculus.htm">Math - Stochastic Calculus</a></p> <p class="bullet_line_space" style="margin-left: 10"> <img border="0" src="../images/bullet.gif" width="20" height="10"><a target="_top" href="../link_topic/math_measure_theory.htm">Math - Measure Theory</a></p> </td> </tr> </table> </td> </tr> </table>  <table border="0" style="border-collapse: collapse" width="100%" cellpadding="0" id="table1" bgcolor="#FFFFFF"> <tr> <td colspan="2" height="12"> <p style="margin-top: 0"> </td> </tr> <tr> <td align="right"> <p align="left" style="margin-bottom: 2px"> <a target="_top" href="http://www.riskexpertise.com/link/advertising.htm"> <font size="1" color="#000000" face="Arial">Ads by Contingency Analysis.</font></a></td> <td align="left"> <p align="right" style="margin-bottom: 2px"> <a target="_top" href="http://www.riskexpertise.com/link/advertising.htm"> <font size="1" color="#000000" face="Arial">Advertise on this site.</font></a></td> </tr> <tr> <td align="center" colspan="2">  <iframe src="http://servedbyadbutler.com/adserve/;ID=147917;size=300x250;setID=93136;type=iframe" allowtransparency="true" background-color="transparent" style="margin: 0px; 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