Louis Bachelier

The doctoral thesis

Defended on 29 March 1900 at the University of Paris, Bachelier's thesis was not well received because it attempted to apply mathematics to an area mathematicians found unfamiliar. "Too much on finance," wrote Paul Lévy. However, his instructor, Henri Poincaré, is recorded as having given some positive feedback (though insufficient to secure Bachelier an immediate teaching position in France at that time). For example, Poincaré called his approach to deriving Gauss's law of errors

very original, and all the more interesting in that Fourier's reasoning can be extended with a few changes to the theory of errors. ... It is regrettable that M. Bachelier did not develop this part of his thesis further.

The thesis received a grade of honorable, and was accepted for publication in the prestigious Annales Scientifiques de l’École Normale Supérieure. While it did not receive a mark of très honorable, despite its ultimate importance, the grade assigned is still interpreted as an appreciation for his contribution. Jean-Michel Courtault et al. point out in "On the Centenary of Théorie de la spéculation" that honorable was "the highest note which could be awarded for a thesis that was essentially outside mathematics and that had a number of arguments far from being rigorous".

Academic career

For several years following the successful defense of his thesis, Bachelier further developed the theory of diffusion processes, and was published in prestigious journals. In 1909 he became a "free professor" at the Sorbonne. In 1914, he published a book, Le Jeu, la Chance, et le Hasard (Games, Chance, and Randomness), that sold over six thousand copies. With the support of the Council of the University of Paris, Bachelier was given a permanent professorship at the Sorbonne, but World War I intervened and he was drafted into the French army as a private. His army service ended on December 31, 1918. In 1919, he found a position as an assistant professor in Besançon, replacing a regular professor on leave. He married Augustine Jeanne Maillot in September 1920 but was soon widowed. When the professor returned in 1922, Bachelier replaced another professor at Dijon. He moved to Rennes in 1925, but was finally awarded a permanent professorship in 1927 at the University of Besançon, where he worked for 10 years until his retirement.

Besides the setback that the war had caused him, Bachelier was blackballed in 1926 when he attempted to receive a permanent position at Dijon. This was due to a "misinterpretation" of one of Bachelier's papers by Professor Paul Lévy, who—to Bachelier's understandable fury—knew nothing of Bachelier's work, nor of the candidate that Lévy recommended above him. Lévy later learned of his error, and reconciled himself with Bachelier.

Although Bachelier's work on random walks predated Einstein's celebrated study of Brownian motion by five years, the pioneering nature of his work was recognized only after several decades, first by Andrey Kolmogorov who pointed out his work to Paul Lévy, then by Leonard Jimmie Savage who translated Bachelier's thesis into English and brought the work of Bachelier to the attention of Paul Samuelson. The arguments Bachelier used in his thesis also predate Eugene Fama's efficient-market hypothesis, which is very closely related, as the idea of a random walk is suited to predict the random future in a stock market where everyone has all the available information. His work in finance is recognized as one of the foundations for the Black–Scholes model.