The Statistical Mechanics of Financial Markets
Description
A careful examination of the interaction between physics and finance. It takes a look at the 100-year-long history of co-operation between the two fields and goes on to provide new research results on capital markets - taken from the field of statistical physics. The random walk model, well known in physics, is one good example of where the two disciplines meet. In the world of finance it is the basic model upon which the Black-Scholes theory of option pricing and hedging has been built. The underlying assumptions are discussed using empirical financial data and analogies to physical models such as fluid flows, turbulence, or superdiffusion. On this basis, new theories of derivative pricing and risk control can be formulated.
Reviews / Votes
"Apart from its envisioned audience in the physics community this book should be useful to econometricians and statisticians who are interested in an unconventional look at empirical finance. It is excellent at illustrating the similarities of financial markets with non-equilibrium physical systems, notably turbulence. Although it is too early for a final verdict on the merits of 'physics methods' in finance, this book is a most welcome starting point for anybody interested in this new interdisciplinary area." (Statistical Papers, 44/2, 2003)
"Provides an excellent introduction for physicists interested in the statistical properties of financial markets. Appropriately early in the book, the basic financial terms such as shorts, limit orders, puts, calls, and other terms are clearly defined. Examples, often with graphs, augment the reader's understanding of what may be a plethora of new terms and ideas. [...] In conclusion, The Statistical Mechanics of Financial Markets is an excellent starting point for the physicist interested in the subject. Some of the book's strongest features are its careful definitions, its detailed examples, and the connections it establishes to physical systems. The mathematics are the level of upper undergraduate statistics and statistical physics, making the book suitable for students as well as practicing physicists." (Physics Today, 2002)
"This book is excellent at illustrating the similarities of financial markets with other non-equilibrium physical systems. [...] In summary, a very good book that offers more than just qualitative comparisons of physics and finance." (www.quantnotes.com)
"Reading this book is a good way for physicists and those who like training to become acquainted with research problems in finance, and it gives finance people with more conventional backgrounds the chance to see what has been accomplished by the physicists who have worked in this area." (MATHEMATICAL REVIEWS)
".an excellent starting point for the physicist interested in the subject.Some of the books strongest features are its careful definition, its detailed examples, and the connections it establishes to physical systems.The mathematics are at the level of upper undergraduate statistics and statistical physics, making the book suitable for students as well as practicing physicists." (PHYSICS TODAY)
More details
Other editions
New editions
Additional editions
