Introduction to Econophysics: Correlations and Complexity in Finance (Google eBook)

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Cambridge University Press, Nov 13, 1999 - Business & Economics - 148 pages
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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.
  

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Contents

1 Introduction
1
2 Efficient market hypothesis
8
3 Random walk
14
4 LÚvy stochastic processes and limit theorems
23
5 Scales in financial data
34
6 Stationarity and time correlation
44
7 Time correlation in financial time series
53
8 Stochastic models of price dynamics
60
11 Financial markets and turbulence
88
12 Correlation and anticorrelation between stocks
98
13 Taxonomy of a stock portfolio
105
14 Options in idealized markets
113
15 Options in real markets
123
Notation guide
130
Martingales
136
References
137

9 Scaling and its breakdown
68
10 ARCH and GARCH processes
76

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