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Introduction to econophysics: correlations and complexity in finance

By: Mantegna, Rosario N.
Contributor(s): Stanley, H. Eugene.
Publisher: New York Cambridge University Press 2007Description: ix, 148 p.ISBN: 9780521039871.Subject(s): Finance - Statistical methods | Finance - Mathematical models | Statistical physicsDDC classification: 332.015195 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. (http://admin.cambridge.org/asia/catalogue/catalogue.asp?isbn=9780521039871)
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Contents
Preface
1. Introduction
2. Efficient market hypothesis
3. Random walk
4. Lévy stochastic processes and limit theorems
5. Scales in financial data
6. Stationarity and time correlation
7. Time correlation in financial time series
8. Stochastic models of price dynamics
9. Scaling and its breakdown
10. ARCH and GARCH processes
11. Financial markets and turbulence
12. Correlation and anti-correlation between stocks
13. Taxonomy of a stock portfolio
14. Options in idealized markets
15. Options in real markets
Appendix A: notation guide
Appendix B: martingales
References
Index

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.

(http://admin.cambridge.org/asia/catalogue/catalogue.asp?isbn=9780521039871)

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