Louis Bachelier

Louis Jean-Baptiste Alphonse Bachelier (baʃəlje; 11 March 1870 – 28 April 1946) was a French mathematician at the turn of the 20th century. He is credited with being the first person to model the stochastic process now called Brownian motion, as part of his doctoral thesis The Theory of Speculation (Théorie de la spéculation, defended in 1900). Bachelier's doctoral thesis, which introduced the first mathematical model of Brownian motion and its use for valuing stock options, was the first paper to use advanced mathematics in the study of finance. His Bachelier model has been influential in the development of other widely used models, including the Black-Scholes model. Thus, Bachelier is considered as the forefather of mathematical finance and a pioneer in the study of stochastic processes. Bachelier was born in Le Havre, in Seine-Maritime. His father was a wine merchant and amateur scientist, and the vice-consul of Venezuela at Le Havre. His mother was the daughter of an important banker (who was also a writer of poetry books). Both of Louis's parents died just after he completed his high school diploma ("baccalauréat" in French), forcing him to take care of his sister and three-year-old brother and to assume the family business, which effectively put his graduate studies on hold. During this time Bachelier gained a practical acquaintance with the financial markets. His studies were further delayed by military service. Bachelier arrived in Paris in 1892 to study at the Sorbonne, where his grades were less than ideal. Defended on 29 March 1900 at the University of Paris, Bachelier's thesis was not well received because it attempted to apply mathematics to an area mathematicians found unfamiliar. However, his instructor, Henri Poincaré, is recorded as having given some positive feedback (though insufficient to secure Bachelier an immediate teaching position in France at that time). For example, Poincaré called his approach to deriving Gauss' law of errors very original, and all the more interesting in that Fourier's reasoning can be extended with a few changes to the theory of errors.