Finance and Mathematics: Merger or Acquisitions?

Abstract

The purpose of this chapter is to study the mathematisation of finance – excessive use of mathematical models in finance – which has been widely 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. 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 find that theoretical developments in the 1950s and 1970s lead directly to this embedding. The key implication of our findings is the realization that it has become necessary to disembed mathematics from finance and economics, and proposes a number of partial steps to facilitate this process. This chapter contributes to the debate on the mathematisation of finance by uniquely combining a historical approach, which chronicles the evolution of the relation between mathematics and finance, with a sociological approach from the perspective of Polyani’s concept of embedding.

Citation

Lleo, S. and Li, J. (2016), "Finance and Mathematics: Merger or Acquisitions?", Finance and Economy for Society: Integrating Sustainability (Critical Studies on Corporate Responsibility, Governance and Sustainability, Vol. 11), Emerald Group Publishing Limited, Leeds, pp. 93-121. https://doi.org/10.1108/S2043-905920160000011005