The Leptokurtic Crisis and the Discontinuous Turn in Financial Modelling

Chapter 8 of: Isabelle Chambost, Marc Lenglet, Yamina Tadjeddine (eds.), The Making of Finance. Perspectives from the Social Sciences, Routledge, 2018.

12 Pages Posted: 9 Mar 2021

See all articles by Christian Pierre Walter

Christian Pierre Walter

Foundation Maison des Sciences de l'Homme (FMSH) - Collège d'études mondiales; KEDGE Business School

Date Written: December 1, 2017

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.

Keywords: fat tails, Lévy processes, Mandelbrot, fractals, neoclassical finance

JEL Classification: B23, B26, B50, C02, G01

Suggested Citation

Walter, Christian Pierre, The Leptokurtic Crisis and the Discontinuous Turn in Financial Modelling (December 1, 2017). Chapter 8 of: Isabelle Chambost, Marc Lenglet, Yamina Tadjeddine (eds.), The Making of Finance. Perspectives from the Social Sciences, Routledge, 2018., Available at SSRN: https://ssrn.com/abstract=3766381 or http://dx.doi.org/10.2139/ssrn.3766381

Christian Pierre Walter (Contact Author)

Foundation Maison des Sciences de l'Homme (FMSH) - Collège d'études mondiales ( email )

54 bd Raspail
Paris, Ile-de-France 75006
France
+33608652084 (Phone)

KEDGE Business School ( email )

Domaine de Luminy - BP 921
BP 921
Marseille, PACA 13288
France

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
12
Abstract Views
117
PlumX Metrics