1、HES/AFA New Orleans, Jan. 4, 2008,1,Pioneers of Financial Economics,Geoffrey Poitras, Simon Fraser University Franck Jovanovic, Universit du Qubec Montreal,HES/AFA New Orleans, Jan. 4, 2008,2,Finance in Antiquity,Financial Transactions involving the future payment for loans of real goods likely pred

2、ate the use of common language Earliest examples of written language the Sumerian cuneiform tablets - deal with financial transactions Code of Hammurabi (circa 1750 BC/BCE) had explicit and harsh penalties for loan defaults,HES/AFA New Orleans, Jan. 4, 2008,3,Finance in Medieval Times,Religious rest

3、rictions on financial activities especially payment of interest on money loans and compensation for risk bearing Education of merchants in finance took place largely outside the Church dominated universities in reckoning schools - the Treviso Arithmetic (1478) was a text for such schools. Compound i

4、nterest calculations were used, if not admitted to, and double entry book keeping was popularized by Fra Luca Pacioli (1445-1514?),HES/AFA New Orleans, Jan. 4, 2008,4,Fra Luca Pacioli,HES/AFA New Orleans, Jan. 4, 2008,5,Finance in Art,Aristotelian teachings which dominated scholastic humanism of the

5、 Church viewed business activities as banal reflected in lack of attention to business themes in Art from the Reformation to the Enlightenment 15th and 16th C. woodcuts of financial activities from Swetz (1987) pale in comparison to Durers Four Horsemen (1498) Until the 18th C., European artists wer

6、e concerned with religious themes e.g., Rembrandt (1633) to Pannini (1750) with Jesus Throwing out the Money Lenders,HES/AFA New Orleans, Jan. 4, 2008,6,Finance in Literature,Shakespeares Merchant of Venice (1600) immortalized Shylock Joseph de la Vega Confusion de Confusiones (1688) written in Span

7、ish by a Portuguese Jewish migr living in Amsterdam. Jonathan Swift, Gullivers Travels (1726) and The Bubble (1721), the first two lines: “Ye wise Philosophers explain, What Magick makes our Money Rise?” To Swift, Isaac Newton was a Philosopher,HES/AFA New Orleans, Jan. 4, 2008,7,The Early History o

8、f Financial Economics,Where to start the history? What is financial economics? Sophisticated pricing formulae for financial securities developed before Adam Smith (1723-1790) was born Building on work of Christian Huygens (1620-1699), Jan de Witt (1625-1672) solved the price for a life annuity,HES/A

9、FA New Orleans, Jan. 4, 2008,8,Das Neu Adam Smith Problem?,HES/AFA New Orleans, Jan. 4, 2008,9,Pricing of Life Annuities,The total number of annuities sold on a life starting at year x is x x equals the sum of dx + dx+1 +. + dw-1 where di is the number of annuities which terminate in period i due to

10、 the death of annuitant nominees in that half year di = 0 for x w. Taking x+t to be the number of nominees, starting in year x surviving in period x + t, it follows that: dx+t = x+t - x+t+1 and that the probability of death in any given half year j is (dx+j / x).,HES/AFA New Orleans, Jan. 4, 2008,10

11、,From E. Halley to A. de Moivre,Halley (1693) is a founding work of actuarial science, demography and financial economics. His tabular solution to the life annuity value was “the short Result of a not ordinary number of Arithmetical Operations” Abraham de Moivre (1667-1754), a giant in mathematical

12、statistics, refined and substantively extended the solution to the life annuity valuation problem. Assuming arithmetically declining survival probabilities, de Moivre showed that the value of a life annuity (EAn) can be closely approximated by the formula:,HES/AFA New Orleans, Jan. 4, 2008,11,The Gr

13、owth of Stock Trading,Initial trading in (joint) stock usually traced back to 1602 with the VOC (Dutch East India Company) in Amsterdam recounted in de la Vega (1688) limited number of securities traded Dramatic emergence of stock trading in England starting in 1690s South Sea Bubble and Mississippi

14、 Scheme (1719-1721) founding of London Stock Exchange building in 1773 Emergence of old Finance with Thomas Mortimer Everyman his Own Broker (1761),HES/AFA New Orleans, Jan. 4, 2008,12,The Reverend Richard Price (1723-91),A dissenting (non-Anglican) English minister Intellectual giant of the 18th C.

15、 Observations on Reversionary Payments (1776) the founding work of modern insurance mathematics took mathematical contributions of de Moivre and applied to problems of insurance and social security design father of modern public pension plans the first actuary (at the Equitable) Essential contributi

16、ons to political science (Give me liberty or give me death), mathematical statistics (responsible for post-humus publication of Bayes Theorem), philosophy (moral pragmatism) and religious studies (use of Bayes theorem against David Humes argument against miracles).,HES/AFA New Orleans, Jan. 4, 2008,

17、13,Philosophy of Financial Economics,Jules Regnault (1834-1894) and the social physics project from Adolph Quetelet (1796-1874),Henri Lefvre (1827-1885) and the unity of science project from Auguste Comte (1798-1857),HES/AFA New Orleans, Jan. 4, 2008,14,Henri Lefvres analogies between financial mark

18、ets and human body,Stock markets (heart),Government (brain),Speculation (nervous system),Options (cardiovascular valve),Goods and services (blood),HES/AFA New Orleans, Jan. 4, 2008,15,Efficiency from the division of labor,Producers,HES/AFA New Orleans, Jan. 4, 2008,16,A graphic method to led financial market more efficient,Call option with a 25c premium,Combination of two options (call and put),HES/AFA New Orleans, Jan. 4, 2008,17,Example of complex