For English readers:
Philippe Herlin, researcher in finance
> The pitch:
The current crisis is a crisis in the language of finance. The notions of fundamental value and market efficiency, or the fact that the risk can be represented by a Gaussian curve, which are the basis of all models, are wrong. It is necessary to propose an alternative approach.
> Abstract of my research:
The aim of this study is to reassess the foundations of the theory of financial markets. We want to return to the fundamental concepts, for questioning and challenging, but also to offer an innovative approach.
The first of them, the founding concept is the dichotomy between the fundamental value and the market price. All theories are based on this distinction. We explain, in referring to the history of economic thought, and the concept of truth, it's false: the "fundamental value" does not exist.
How, then, to grasp reality? We return to the notion of information and are appealing to the communication theory of Shannon and Weaver, which measures the value of information by its probability of occurrence. Milestone, this theory leads to the concept of organization, called in physics, or more precisely in thermodynamics, entropy. And we will see figures to support that this organization logic - very different - is precisely the structure of financial markets.
But if information, contrary to what said the theory of efficiency, is unevenly distributed and taken into account by the market, this should be reflected, especially in prices, or more accurately the price series. And that is precisely what said Benoît Mandelbrot, who highlighted the fractal dimension of financial asset prices.
Can we then connect the organisation (entropy) of the market with its march in time (the series of prices), its synchronic and diachronic dimensions? Yes, thanks to mathematician Michel Mendès-France, which established the formula linking the entropy and fractal dimension of a curve. This is what we call "the fundamental equation", which loop and validates all of our reasoning.
On these bases, and with this new look, we can now open up new and rich perspectives on the functioning and understanding of financial markets.
> Book:
Finance: the new paradigm, understand finance and economy with Mandelbrot, Taleb... (in french)
> I'm looking for an English Publisher, see this page
> Publications:
- Club Finance HEC (the major School of Management in France)
- Tribunes in Les Echos and La Tribune (the two daily économic newspapers in France)
> Contact:
Join the Facebook group Finance & Mandelbrot
