1900-The first work to engage uncertainty and financial markets was done in 1900 by a French mathematician
Louis Bachelier’s in his PhD thesis: “Theory of Speculation”. Bachelier assumed the ROI on a equity was normally distributed (still widely used), and formulated the price of a option.
1952- Markowitz, H.M. (March 1952). In his work “Portfolio Selection”. The Journal of Finance, connects the mean expected return of a stock to its volatility (the risk of achieving this return
1958-Miller, M. and Modigliani, F., “The Cost of Capital, Corporation Finance,
and the Theory of Investment”, American Economic Review (June 1958).
1965-Samuelson, P. A., “Proof that Properly Anticipated Prices Fluctuate
Randomly,” Industrial Management Review (Spring 1965).
1970-Fama, E.F., “Efficient Capital Markets: A Review of Theory and Empirical Work”, Journal of Finance (May 1970).
1973 – Black, F. and Scholes, M., “The Pricing of Options and Corporate Liabilities,”
Journal of Political Economy (May-June 1973).
Merton, R.C., “A Rational Theory of Option Pricing”, Bell Journal of
Economics and Management Science (Spring 1973).
1974 – Merton, R.C., “ON THE PRICING OF CORPORATE DEBT: THE RISK STRUCTURE OF INTEREST PATES”
1976- Stephan a Ross “The Arbitrage Theory of Capital Asset Pricing”, gives an alternative to the CAPM approach for investment evaluation.
1982-Autoregressive conditional heteroskedasticity ARCH computes the volatility of a time series from past values of the series. This work presented by Robert Engel gave the first formalism to connect the volatility fluctuations and the original time series.
1986-Tim Bollerslev generalizes Engel work on the computation of the stochastic volatility (ARCH) into a mean reverting model called – GARCH.
1987 – Robert Engel in his work “Co-integration and error correction: Representation, estimation and testing” points out the understanding that two time series that have non stationary distributions their linear combination can have a stationary distribution. This formalism in financial time series gives the connections between an underline and the future price. Until this work it was computed using regression.