Finance And Mathematics: Merger Or Acquisitions?
38 Pages Posted: 1 Oct 2014 Last revised: 21 Sep 2015
Date Written: May 14, 2015
The mathematisation of finance - excessive use of mathematical models in finance - has been blamed for the recent financial and economic crisis. We argue that the problem might actually be the financialisation of mathematics, as evidenced by the gradual embedding of branches of mathematics into financial economics. We find that the concept of embeddedness, originally proposed by Polanyi, is relevant to describe the sociological relationship between fields of knowledge. After exploring the relationship between mathematics, finance and economics since antiquity, we show how theoretical developments in the 1950s and 1970s lead directly to this embedding. We argue that it has become necessary to disembed mathematics from finance and economics, and propose a number of partial steps to facilitate this process.
Keywords: mathematical finance, financial economics, history of economics, history of mathematics, embedding, derivatives pricing, financial crisis, Barnesian performativity
JEL Classification: A14, B16, B23, C02, G00
Suggested Citation: Suggested Citation