Neoclassical finance

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Neoclassical finance is a school of thought that has developed since the mid 1960s, building on earlier developments such as the Austrian School of economics but cross-fertilizing with atomic physics and other heavily quantitative disciplines.

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Neoclassical finance, as advocated for example by Stephen Ross, a one-time student of sub-atomic physics himself, holds that markets are efficient, so that prices capture information, that arbitrage is at most a local and transient opportunity, so prices can be ascertained on a no-arbitrage thesis, and that derivatives play a crucial role in moderating the volatility of price swings.