Outline
00:00 - Intro
02:25 - Bachelier and the Théorie de la Spéculation
03:05 - Stochastic processes, Brownian motion, and the heat equation
09:45 - Poincaré's verdict, obscurity, and rediscovery
13:50 - Robert C. Merton: from hot rods to MIT
19:25 - Dynamic programming and Itô calculus
24:35 - Merton's portfolio problem as stochastic optimal control
31:10 - Options, dynamic hedging, and the Black–Scholes–Merton equation
39:50 - LTCM: the dream team
46:30 - August 1998: the crash
49:00 - Fat tails and the ten-sigma defense
51:40 - The ghosts of 2008 and echoes in the AI boom
54:00 - Robustness embraced at last: Hansen and Sargent
57:45 - Outro

Links
Bachelier's thesis, "Théorie de la Spéculation" (1900): https://www.numdam.org/item/10.24033/asens.476.pdf
Courtault et al., "Louis Bachelier on the Centenary of Théorie de la Spéculation": https://doi.org/10.1111/1467-9965.00098
Merton's Nobel autobiography: https://www.nobelprize.org/prizes/economic-sciences/1997/merton/biographical/
Merton's MIT "Infinite History" interview: https://infinite.mit.edu/video/robert-c-merton-phd-%E2%80%9970/
Mandelbrot, "The Variation of Certain Speculative Prices": https://doi.org/10.1086/294632
Merton, "Optimum Consumption and Portfolio Rules in a Continuous-Time Model": https://doi.org/10.1016/0022-0531(71)90038-X
Moehle & Boyd, "A Certainty Equivalent Merton Problem": https://doi.org/10.1109/LCSYS.2021.3111534
Brigo & Mercurio, "Interest Rate Models: Theory and Practice": https://doi.org/10.1007/978-3-540-34604-3
Armstrong, Brigo & Hanzon, "Optimal Projection Filters with Information Geometry": https://doi.org/10.1007/s41884-023-00108-x
Hu & Zhou, "Constrained Stochastic LQ Control with Random Coefficients, and Application to Portfolio Selection": https://doi.org/10.1137/S0363012904441969
Black & Scholes, "The Pricing of Options and Corporate Liabilities": https://doi.org/10.1086/260062
Merton, "Theory of Rational Option Pricing": https://doi.org/10.2307/3003143
Merton, "Option Pricing When Underlying Stock Returns Are Discontinuous": https://doi.org/10.1016/0304-405X(76)90022-2
Scholes' Nobel lecture: https://www.nobelprize.org/prizes/economic-sciences/1997/scholes/lecture/
Merton's Nobel lecture: https://www.nobelprize.org/prizes/economic-sciences/1997/merton/lecture/
Markowitz, "Portfolio Selection": https://doi.org/10.2307/2975974
Michael Lewis, "Liar's Poker": https://en.wikipedia.org/wiki/Liar%27s_Poker
Edwards, "Hedge Funds and the Collapse of Long-Term Capital Management": https://doi.org/10.1257/jep.13.2.189
Lowenstein, "When Genius Failed": https://en.wikipedia.org/wiki/When_Genius_Failed
Taleb, "Statistical Consequences of Fat Tails": https://arxiv.org/abs/2001.10488
Taleb & West, "Working with Convex Responses: Antifragility from Finance to Oncology": https://doi.org/10.3390/e25020343
Taleb, "The Black Swan": https://en.wikipedia.org/wiki/The_Black_Swan:_The_Impact_of_the_Highly_Improbable
Taleb, "Fooled by Randomness": https://en.wikipedia.org/wiki/Fooled_by_Randomness
Man Group, "The AI Bubble: Hidden Risks and Opportunities": https://www.man.com/insights/the-ai-bubble
Sen. Warren's remarks at the Vanderbilt Policy Accelerator: https://www.banking.senate.gov/newsroom/minority/warren-remarks-at-vanderbilt-policy-accelerator-event-highlighting-economic-and-financial-risks-of-potential-ai-crash
Meng & Chen, "Artificial Intelligence and Systemic Risk": https://arxiv.org/abs/2604.03272
Doyle, "Guaranteed Margins for LQG Regulators": https://doi.org/10.1109/TAC.1978.1101791
Safonov & Athans, "Gain and Phase Margin for Multiloop LQG Regulators": https://doi.org/10.1109/TAC.1977.1101470
Hansen & Sargent, "Robust Control and Model Uncertainty": https://doi.org/10.1257/aer.91.2.60
Hansen & Sargent, "Wanting Robustness in Macroeconomics": http://www.tomsargent.com/research/wanting.pdf

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Acknowledgments and sponsors
This episode was supported by the National Centre of Competence in Research on «Dependable, ubiquitous automation» and the IFAC Activity fund. The podcast benefits from the help of an incredibly talented and passionate team. Special thanks to L. Seward, E. Cahard, F. Banis, F. Dörfler, J. Lygeros, ETH studio and mirrorlake . Music was composed by A New Element.