The Random Walk Model in Finance: A New Taxonomy

28 Pages Posted: 23 Aug 2021

See all articles by Christian Pierre Walter

Christian Pierre Walter

Fondation Maison des sciences de l'homme (FMSH) - Ethics and Finance Chair; KEDGE Business School

Date Written: May 26, 2021

Abstract

The backbone of financial risk modeling in finance over a long time period of more than a century, the random walk hypothesis has shown substantial variations in its structure throughout its history. In this article, I revisit the history of the random walk model in finance by introducing a new way of describing what a random walk is, based on the Lévy measure in the Fourier space, a tool that has not yet been used in the history of financial thought. With this lens, we are able to understand the overview of the life of this model in finance over the entire 20th century, including the precursors of the 19th century.

Keywords: Lévy measure,Lévy process, random walk model, finance, history of financial thought

JEL Classification: B26,G00,

Suggested Citation

Walter, Christian Pierre, The Random Walk Model in Finance: A New Taxonomy (May 26, 2021). Available at SSRN: https://ssrn.com/abstract=3908441 or http://dx.doi.org/10.2139/ssrn.3908441

Christian Pierre Walter (Contact Author)

Fondation Maison des sciences de l'homme (FMSH) - Ethics and Finance Chair ( email )

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

HOME PAGE: http://epistemofinance.hypotheses.org/

KEDGE Business School ( email )

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

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