Article

A New Philosophy of the Market

Élie Ayache

in The Oxford Handbook of Credit Derivatives

Published in print January 2011 | ISBN: 9780199546787
Published online September 2012 | | DOI: http://dx.doi.org/10.1093/oxfordhb/9780199546787.013.0013

Series: Oxford Handbooks in Finance

 A New Philosophy of the Market

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  • Econometric and Statistical Methods and Methodology: General

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This article attempts to genetically deduce the market from the historical event of the conversion of debt into equity. This event can be related, historically, to the year 1602, when the Dutch created the East India Company – the first joint stock company whose shares almost simultaneously started being exchanged in the ‘street’, subsequently necessitating the creation of the first stock exchange. As such, the morphogenetic process engendering the market is not mediated by the category of probability or possibility. One of the strangest results of our deduction of the market is that we do not come up, as expected, with equity (or stock) as the consequence of the conversion of debt into equity, but directly with the contingent claim. In the logic of our deduction, the contingent claim precedes the notion of exchange and market, and precedes the notion of price. It precedes them only just, because the exchange and the market and the price will also be deduced in one and the same movement. The idea is that, insofar as the contingent claim is the direct result of the conversion, it cannot but get carried along by its own momentum and subsequently produce the market and become translated into price. Insofar as it results from the conversion of debt, the contingent claim is the exchange is the market.

Keywords: market; debt; equity; contingent claim

Article.  17957 words. 

Subjects: Economics ; Financial Markets ; Econometric and Statistical Methods and Methodology: General

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