Physics of financial markets
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Physics of financial markets is a non-orthodox economics discipline that studies
financial markets A financial market is a market in which people trade financial securities and derivatives at low transaction costs. Some of the securities include stocks and bonds, raw materials and precious metals, which are known in the financial marke ...
as
physical systems A physical system is a collection of physical objects under study. The collection differs from a set: all the objects must coexist and have some physical relationship. In other words, it is a portion of the physical universe chosen for analysi ...
. It seeks to understand the nature of financial processes and phenomena by employing the
scientific method The scientific method is an Empirical evidence, empirical method for acquiring knowledge that has been referred to while doing science since at least the 17th century. Historically, it was developed through the centuries from the ancient and ...
and avoiding beliefs, unverifiable assumptions and immeasurable notions, not uncommon to economic disciplines. Physics of financial markets addresses issues such as theory of price formation, price dynamics, market
ergodicity In mathematics, ergodicity expresses the idea that a point of a moving system, either a dynamical system or a stochastic process, will eventually visit all parts of the space that the system moves in, in a uniform and random sense. This implies th ...
, collective phenomena, market self-action, and market instabilities. Physics of financial markets should not be confused with
mathematical finance Mathematical finance, also known as quantitative finance and financial mathematics, is a field of applied mathematics, concerned with mathematical modeling in the financial field. In general, there exist two separate branches of finance that req ...
, which are only concerned with descriptive
mathematical modeling A mathematical model is an abstract and concrete, abstract description of a concrete system using mathematics, mathematical concepts and language of mathematics, language. The process of developing a mathematical model is termed ''mathematical m ...
of
financial instrument Financial instruments are monetary contracts between parties. They can be created, traded, modified and settled. They can be cash (currency), evidence of an ownership, interest in an entity or a contractual right to receive or deliver in the form ...
s without seeking to understand nature of underlying processes.


See also

*
Econophysics Econophysics is a non-orthodox (in economics) interdisciplinary research field, applying theories and methods originally developed by physicists in order to solve problems in economics, usually those including uncertainty or stochastic processes ...
* Social physics * Quantum economics *
Thermoeconomics Thermoeconomics, also referred to as biophysical economics, is a school of heterodox economics that applies the laws of thermodynamics, laws of statistical mechanics to economic theory. Thermoeconomics can be thought of as the statistical physic ...
* Quantum finance *
Kinetic exchange models of markets Kinetic exchange models are multi-agent dynamic models inspired by the statistical physics of energy distribution, which try to explain the robust and universal features of income/wealth distributions. Understanding the distributions of incom ...
*
Brownian model of financial markets The Brownian motion models for financial markets are based on the work of Robert C. Merton and Paul A. Samuelson, as extensions to the one-period market models of Harold Markowitz and William F. Sharpe, and are concerned with defining the concep ...
** Ergodicity economics


References

{{reflist Applied and interdisciplinary physics Financial markets Technical analysis