‘The two quantifications of financial theory: a toy model’ by Christian Walter
17:30 CET, 23 March 2023 - Phinance Online Seminars
Walter presents without mathematical complexity a toy model of the well-known and celebrated Efficient Market Hypothesis (EMH). This toy EMH-model aims to illuminate the correspondences between the multiple representations of EMH-models with a focus on the two main mathematical frameworks of EMH: the mean-variance universe of Markowitz (1952) under the “real world” probability P and the martingale pricing universe of Harrison and Kreps (1979) and Harrison and Pliska (1981) under the “risk-neutral” probability Q. These two mathematical frameworks have been characterised in Chiapello and Walter (2016) as two quantification conventions. Walter’s toy EMH-model expands and elaborates on the previous article by adding to it a simplified integrated approach to these two conventions, and linking them to general equilibrium theory. One epistemic gain of this toy EMH-model is that it easily captures one of the most difficult conceptual aspects of the EMH, saying the uniqueness of the risk-neutral probability Q in a complete arbitrage-free market.
Walter’s ambitiously stated proposal is that the epistemic goal of his toy EMH-model is to enable social scientists, financial practitioners and non-specialists of stochastic calculus to understand some of the epistemic difficulties of the EMH, namely the intertwin between the P-world and the Q-world. In that sense, the proposed toy EMH-model is epistemically valuableand pedagogically useful.
The meeting is followed by an open debate.
‘The two quantifications of financial theory: a toy model’ by Christian Walter
17:30 CET, 23 March 2023
Phinance Online Seminars are organized by Phinance, the Philosophy & Finance Network
17:30 Christian Walter (FMSH, Paris), The two quantifications of financial theory: a toy model
18:20 Debate
Chair: Emiliano Ippoliti (Sapienza University of Rome)