Louis Bachelier

Louis Bachelier was a French mathematician who 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. He defended his doctoral thesis on 29 March 1900 at the University of Paris, before a committee composed of Paul Appell, Joseph Boussinesq and Henri Poincaré. The thesis was not well received because it attempted to apply mathematics to an area mathematicians found unfamiliar. However, Poincaré gave some positive feedback and appreciated Bachelier's original approach to deriving Gauss' law of errors. The thesis received a grade of honorable, and was accepted for publication in the prestigious Annales Scientifiques de l’École Normale Supérieure. Bachelier's academic career was not very successful after his thesis. He did not obtain a permanent position until 1919, when he became an assistant professor at Besançon. He then moved to Dijon in 1922, and finally to Rennes in 1925. He married Augustine Jeanne Maillot in September 1920 but was soon widowed. He had no children. He continued to publish papers on mathematics and finance until his retirement in 1937. He died in 1946 from unknown causes. Bachelier's work was largely ignored by his contemporaries until it was rediscovered by economists and mathematicians in the second half of the 20th century. His contributions to probability theory, stochastic processes, differential equations and financial mathematics have been recognized by several awards and honors, such as the naming of the Bachelier Society, the Bachelier Prize and the Bachelier Colloquium. He is widely regarded as one of the greatest mathematicians of all time.