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date: 21 August 2019

Abstract and Keywords

This article analyzes the place of modern finance in modern economic theories. It aims to show how economics has influenced, and continues to influence, modern financial theory. The article is organized as follows. The first part focuses on the theoretical foundations of modern financial theory. It analyzes the way modern probability theory and economics were linked together to create modern financial theory. The second part presents the key works of the dominant paradigm of financial economics, which was built during the 1960s and the 1970s. It shows how major concepts and hypotheses from economics were integrated into mathematical models. The third part looks at anomalies that have emerged since the end of the 1970s and are inconsistent with the dominant paradigm. The last part deals with two major approaches born outside financial economics — social studies of financial markets and econophysics — which are among the greatest challenges to the foundations of the dominant paradigm of financial economics today.

Keywords: modern finance, modern financial theory, probability theory, financial economics, social studies, financial markets, econophysics

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