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.
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.
Contents
1. Mathematics and finance
2. Theorie de la Speculation
3. From Bachelier to Kreps, Harrison and Pliska
4. Facsimile of Bachelier's original thesis
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.
Are you still
reading this review? I can't believe this! GO OUT AND BUY THE BOOK. [December
7, 2006]
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