Standard texts and research in economics and finance ignore the absence of evidence from the analysis of real, unmassaged market data to support the notion of Adam Smith's stabilizing Invisible Hand. In stark contrast, this text introduces a new empirically-based model of financial market dynamics that explains the volatility of prices options correctly and clarifies the instability of financial markets. The emphasis is on understanding how real markets behave, not how they hypothetically 'should' behave.
Contents
Preface; 1. The moving target; 2. Neo-classical economic theory; 3. Probability and stochastic processes; 4. Scaling the ivory tower of finance; 5. Standard betting procedures in portfolio selection theory; 6. Dynamics of financial markets, volatility and option pricing; 7. Thermodynamic analogies vs. instability of markets; 8. Scaling, correlations and cascades in finance and turbulence; 9. What is complexity?; References; Index.
Review
"This book is a case in point. This is an important contribution to the understanding of how financial markets actually perform and both students and researchers interested in econophysics should study this book carefully." American Mathematical Society
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