Continuity is a common human assumption. If we see a man running at one moment here and a half-hour later there, we assume he has run a line covering all the ground in between. It does not occur to us that he may have stopped to rest and then hitched a ride. The greatest innovation of seventeenth-century mathematics, the calculus, was designed to study continuous change; its cofounder, Gottfried von Leibniz, believed deeply in what he called a “principle of continuity.” Economists often do the same. Continuity is a fundamental assumption of conventional finance. The mathematics of Bachelier,
...more
