Economics becomes a science · 1770s–1920s
1900
Prices as a random walk
Louis Bachelier models share prices mathematically and prices options.
In his 1900 thesis, The Theory of Speculation, French mathematician Louis Bachelier modelled price changes as random and used it to value options on the Paris Bourse. His work was largely ignored for half a century.
💡 Why it made sense then
Paris had an active options market, and Bachelier wanted a scientific way to price its contracts.
Ideas it gave us
- 🧾 Volatility
Volatility measures how much and how quickly a price moves up and down, usually as the annualized standard deviation of its returns.
Practise with $10,000 in play money
Free. No real money involved.