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The leptokurtic crisis and the discontinuous turn in financial modelling

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  • Christian Walter

    (LAP - Laboratoire d’anthropologie politique – Approches interdisciplinaires et critiques des mondes contemporains, UMR 8177 - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique)

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.

Suggested Citation

  • Christian Walter, 2018. "The leptokurtic crisis and the discontinuous turn in financial modelling," Post-Print hal-04560385, HAL.
    • Handle: RePEc:hal:journl:hal-04560385
    DOI: 10.4324/9781351016117-10
    Note: View the original document on HAL open archive server: https://hal.science/hal-04560385
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    References listed on IDEAS

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    1. Donald MacKenzie, 2006. "An Engine, Not a Camera: How Financial Models Shape Markets," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262134608, December.
    2. Benoit Mandelbrot, 2015. "The Variation of Certain Speculative Prices," World Scientific Book Chapters, in: Anastasios G Malliaris & William T Ziemba (ed.), THE WORLD SCIENTIFIC HANDBOOK OF FUTURES MARKETS, chapter 3, pages 39-78, World Scientific Publishing Co. Pte. Ltd..
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