Predicting stock exchange developments?

Since the mid-1990s a team of ULg researchers has applied a mathematical model to certain financial phenomena. This model has the special feature of integrating notions of chaos and unpredictability into a determinist system. Professors Jacques Bair and Gentiane Haesbroeck have jointly written a publication offering an overall synopsis of this research (1).

Stock-exchange-evolutionMathematical modelling has earned its spurs over recent decades. More and more reliable, it has enabled the description, and at a lower cost, of varied and complex phenomena in a summarising, intelligible and interpretable way. Whether they have their origins in disciplines as diverse as climatology, oceanography, medicine, biology or astrophysics, to mention just these examples.

In the exact sciences, after numerous approximations, retouches, improvements in basic equations and tests, the models have offered descriptions which are sufficiently close to reality, both from a descriptive point of view, which has allowed a synopsis and interpretation of information which is otherwise too large and numerous, as well as from a predictive perspective. The value of their use no longer needs to be demonstrated, and they have been able to establish their authority and establish their importance within current research programmes.

Inevitably the capacity to describe past phenomenon which are otherwise unintelligible, and more widely still to predict more or less reliably are two attractive abilities. And certain models have thus rapidly been applied to the human sciences, and more particularly to the economy and the world of finance, as coveted as it is obscure.

How many works of fiction, films or novels, have imagined a miracle recipe for getting rich in Wall Street? How many economists have dreamed of being able to predict major stock market crashes, and being established as heroes in the pantheon of capitalism? And what if mathematical models could render these works of fiction and dreams obsolete?

Between the linearity of models and the chaos of life

In the middle of the 1990s scientists from different countries were looking to develop determinist models which could be applied to the chaotic world of finance. At the University of Liège one research group was built around Professor Jacques Bair: it took a very close interest in the subject and was one of the first to transmit this new mode of thinking into francophone Belgium. ‘With Professor Crama we created the GEMME (Groupe d’Etude des Mathématiques, du Management et de l’Economie). We were supported by many fledgling researchers, at the time, and were very active on the question of the integration of mathematics in the world of the economy, and we published a whole series of articles, notably with Professor Haesbroeck.’

(1) Bair J, Haesbroeck G., Modèles chaotiques en économie, Tangent sup., Prévoir pour décider, POLE, 2012.

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