Continuous-time stochastic price models were introduced to finance by Bachelier in 1900.

Evidence

Regnault’s work has only recently been rediscovered. More celebrated as a precursor of modern random-walk theory has been Louis Bachelier, a student of the leading French mathematician and mathematical physicist Henri Poincare (on whom see, for example, Galison 2003). While Regnault drew on existing and relatively elementary probability theory, Bachelier developed a model of a random or “stochastic” process in continuous time. In Bachelier’s model, the price of a security can change probabilistically in any time interval, however short. (The coin-tossing model is, in contrast, a stochastic process in discrete time: at least implicitly, the model is of a coin tossed only at specific moments, and not between those moments.) — Donald MacKenzie, An Engine, Not a Camera, 263

Categorization

• XREF: connects to: A thesis student rediscovered Bachelier’s options work only after completing his own — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 284

Broader Connections

• A thesis student rediscovered Bachelier’s options work only after completing his own #expands (0.82) — Donald MacKenzie, An Engine, Not a Camera, 284