Penn STAT 955 - STAT 955 LECTURE NOTES (38 pages)

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STAT 955 LECTURE NOTES



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STAT 955 LECTURE NOTES

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Pages:
38
School:
University of Pennsylvania
Course:
Stat 955 - Stochastic Calculus and Financial Applications.
Stochastic Calculus and Financial Applications. Documents

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ABSTRACT This paper describes and analyses the history of the fundamental equation of modern financial economics the Black Scholes or Black Scholes Merton option pricing equation In that history several themes of potentially general importance are revealed First the key mathematical work was not rule following but bricolage creative tinkering Second it was however bricolage guided by the goal of finding a solution to the problem of option pricing analogous to existing exemplary solutions notably the Capital Asset Pricing Model which had successfully been applied to stock prices Third the central strands of work on option pricing although all recognizably orthodox economics were not unitary There was significant theoretical disagreement amongst the pioneers of option pricing theory this disagreement paradoxically turns out to be a strength of the theory Fourth option pricing theory has been performative Rather than simply describing a preexisting empirical state of affairs it altered the world in general in a way that made itself more true Keywords finance Black Scholes bricolage option pricing performativity social studies of An Equation and its Worlds Bricolage Exemplars Disunity and Performativity in Financial Economics Donald MacKenzie Economics and economies are becoming a major focus for social studies of science Historians of economics such as Philip Mirowski and the small number of sociologists of economics such as Yuval Yonay have been applying ideas from science studies with increasing frequency in the last decade or so 1 Established science studies scholars such as Knorr Cetina and newcomers to the field such as Izquierdo Le pinay Millo and Muniesa have begun detailed often ethnographic work on economic processes with a particular focus on financial markets 2 Actor network theorist Michel Callon has conjoined the two concerns by arguing that an intrinsic link exists between studies of economics and of economies The economy is not an independent object that



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