The Brownian motion. A rigorous but gentle introduction for economists (Q2419878)

The textbook under review is to fill the gap to provide a mathematical precise introduction of the Brownian motion for special readers economists. As mentioned in the subtitle, it is a rigorous but gentle introduction of the Brownian motion to cover the basic concepts from the measure theory, random variables and expectations to Wiener's construction of the Brownian motion, with necessary supplements related to properties of the Brownian motion. While biologist Robert Brown in 1827 was studying pollen particles floating in water in the microscope, he observed minute particles in the pollen grains executing the jittery motion. After repeating the experiment with particles of dust, he was able to conclude that the motion was due to pollen being ``alive'' but the origin of the motion remained unexplained. The first one to give a theory of Brownian motion was Louis Bachelier in 1900 his PhD thesis ``The theory of speculation'', which introduced for the first time a mathematical model of Brownian motion and its use for valuing stock options, is historically the first paper to use advanced mathematics in the study of finance. Bachelier is therefore regarded as the father of mathematical finance and a pioneer in the study of stochastic processes. With a gentle introduction on various random processes, authors model the underlying stock price, and derive the value of a derivative under Itô Lemma in the first chapter. Then the basic notations and set theory are given in Chapter 2 with elementary operations to prepare for the sigma algebra. Both discrete-time and continuous-time models are presented for the binomial price model of a stock share and the share price evolution. Chapter 3 launches the measure theory with mathematical preparations on sigma algebra and measurability with binomial price model revisited, and explains the almost surely property. Chapter 4 briefs random variables from dice roll, linear regression from S\&P 500 to Apple stock, distribution functions and expectation of a random variable. Chapter 5 gives Riemann integral, Lebesgue integral, and the most important concept `conditional expectation' in financial economics. The Brownian motion is constructed from the coin toss to random walk with all paths, and the definition of the Brownian motion is vague in Definition 6.1, and incorrect in Definition 6.2. The Brownian motion is almost surely continuous or always has a continuous path, but by no means it is continuous for all paths. The martingale property of the Brownian motion is missing. The Brownian motion is symmetric, scalable, time inversion, time reversible, and self-similar. The textbook is excellent for economists and financial economists who want to understand a little deeper in the Brownian motion with this soft introduction. It would be better to use Bachelier's thesis instead of Einstein's article to show the long history of the Brownian motion in economics. It may be more helpful to provide economical examples to further understand the conditional expectation as a random variable.