Bachelier's Theory

Bachelier's Theory, proposed by Louis Bachelier in 1900, was the first mathematical model to describe how asset prices fluctuate over time. It treats these price changes as a random process, similar to particles moving unexpectedly in a fluid, assuming they follow a normal (bell-curve) distribution. This approach helps in understanding the probabilities of different price outcomes and sets the foundation for modern financial mathematics, including options pricing. Although initial assumptions faced real-world limitations, Bachelier's work was pioneering in quantifying market behavior through probability and statistics.