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The Statistical Mechanics of Financial Markets (Theoretical and Mathematical Physics)

  • Book
  • Jul 15, 2003
  • #Finance
Johannes Voit
@JohannesVoit
(Author)
www.amazon.com
Hardcover
3.7/5 11 ratings
Edition
See on Goodreads
4.30/5 20 ratings
1 Recommender
1 Mention
This highly praised introductory treatment describes the parallels between statistical physics and finance - both those established in the 100-year long interaction between these di... Show More

This highly praised introductory treatment describes the parallels between statistical physics and finance - both those established in the 100-year long interaction between these disciplines, as well as new research results on financial markets. The random-walk technique, well known in physics, is also the basic model in finance, upon which are built, for example, the Black-Scholes theory of option pricing and hedging, plus methods of portfolio optimization. Here the underlying assumptions are assessed critically. Using empirical financial data and analogies to physical models such as fluid flows, turbulence, or superdiffusion, the book develops a more accurate description of financial markets based on random walks. With this approach, novel methods for derivative pricing and risk management can be formulated. Computer simulations of interacting-agent models provide insight into the mechanisms underlying unconventional price dynamics. It is shown that stock exchange crashes can be modelled in ways analogous to phase transitions and earthquakes, and sometimes have even been predicted successfully. This third edition of "The Statistical Mechanics of Financial Markets" especially stands apart from other treatments because it offers new chapters containing a practitioner's treatment of two important current topics in banking: the basic notions and tools of risk management and capital requirements for financial institutions, including an overview of the new Basel II capital framework which may well set the risk management standards in scores of countries for years to come.

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ISBN: 3540262857

ISBN-13: 9783540262855

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Nassim Nicholas Taleb @nntaleb
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  • From www.amazon.com
Very useful book, particularly in what concerns alternative L-Stable distributions. True, not too versed in financial theory but I'd rather see the author erring on the side of more physics than mathematical economics. As an author I don't ask much from books, just to deliver what they indend. This one does. Clear historical description of Einstein/Bachelier. Hopefully one day we will call derivatives pricing the Bachelier valuation. The book in short provides an excellent perspective on the statistical approach to asset price dynamics. Very clear and to the point. N
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