Introduction to Econophysics: Correlations and Complexity in Finance

by Rosario N. Mantegna , H. Eugene Stanley

• ISBN13: 9780521039871
• ISBN10: 0521039878
• Edition: 1st
• Format: Paperback
• Copyright: 2007-07-16
• Publisher: Cambridge University Press

Summary

This book concerns the use of concepts from statistical physics in the description of financial systems. The authors illustrate the scaling concepts used in probability theory, critical phenomena, and fully developed turbulent fluids. These concepts are then applied to financial time series. The authors also present a stochastic model that displays several of the statistical properties observed in empirical data. Statistical physics concepts such as stochastic dynamics, short- and long-range correlations, self-similarity and scaling permit an understanding of the global behaviour of economic systems without first having to work out a detailed microscopic description of the system. Physicists will find the application of statistical physics concepts to economic systems interesting. Economists and workers in the financial world will find useful the presentation of empirical analysis methods and well-formulated theoretical tools that might help describe systems composed of a huge number of interacting subsystems.

Table of Contents

Preface

Introduction

Efficient market hypothesis

Random walk

LFvy stochastic processes and limit theorems

Scales in financial data

Stationarity and time correlation

Time correlation in financial time series

Stochastic models of price dynamics

Scaling and its breakdown

ARCH and GARCH processes

Financial markets and turbulence

Correlation and anti-correlation between stocks

Taxonomy of a stock portfolio

Options in idealized markets

Options in real markets

Notation guide

Martingales

References

Index

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