The leptokurtic crisis and the discontinuous turn in financial modelling
Résumé
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.
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Walter 2019 Leptokurtic crisis discontinuous turn.pdf (240.93 Ko)
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