Quantitative Finance for Physicists book cover

Quantitative Finance for Physicists

An Introduction

With more and more physicists and physics students exploring the possibility of utilizing their advanced math skills for a career in the finance industry, this much-needed book quickly introduces them to fundamental and advanced finance principles and methods. Quantitative Finance for Physicists provides a short, straightforward introduction for those who already have a background in physics. Find out how fractals, scaling, chaos, and other physics concepts are useful in analyzing financial time series. Learn about key topics in quantitative finance such as option pricing, portfolio management, and risk measurement. This book provides the basic knowledge in finance required to enable readers with physics backgrounds to move successfully into the financial industry.

Audience
Physics students following a course on finance worldwide, students in econophysics and quantitative finance, physicists interested in moving into professional finance positions.

Hardbound, 184 Pages

Published: December 2004

Imprint: Academic Press

ISBN: 978-0-12-088464-3

Reviews

  • "… Schmidt's book is the most pedagogical among the few good econophysics books to have appeared in the last years. I am going to use it whenever teaching econophysics to young researchers.... A very positive contribution, giving the new generation of scientists a balanced, interdisciplinary, yet soundly professional background in this fascinating and promising field." — Sorin Solomon, Professor at the Racah Institute of Physics, Hebrew University of Jerusalem and Director of the Multi-Agent Systems Division at the Institute for Scientific Interchange, Torino "…What amazes me most in this nicely crafted presentation of hot topics in econometrics, mathematical finance, econophysics, and agent-based modeling is how the selection of topics is well-informed and how these pour out smoothly. I will recommend this book to my own financial economics students as an up-to-date, quick reference companion to classes and the lab." — Sergio Da Silva, Department of Economics, Federal University of Santa Catarina, Brazil

Contents

  • Contents1. Introduction 2. Financial Markets2.1 Market price formation 2.2 Returns and dividends 2.2.1 Simple and compounded returns 2.2.2 Dividend effects 2.3 Market Efficiency 2.3.1 Arbitrage 2.3.2 Efficient market hypothesis 2.3.2.1 The idea 2.3.2.2 The critique2.4 Pathways for further reading2.5 Exercises3. Probability distributions3.1 Basic definitions3.2 Some important distributions3.3 Stable distributions and scale invariance3.4 References for further reading3.5 Exercises4. Stochastic processes 4.1 Markov process 4.2 Brownian motion 4.3 Stochastic differential equation. Ito’s lemma 4.4 Stochastic integral 4.5 Martingales4.6 References for further reading4.7 Exercises5. Time series analysis 5.1 Autoregressive and moving average models5.2 Trends and seasonality5.3 Conditional heteroskedascisity5.4 Multivariate time series5.5 References for further reading and econometric software5.6 Exercises6. Fractals6.1 Basic definitions6.2 Multifractals6.3 References for further reading6.4 Exercises7. Nonlinear dynamical systems 7.1 Motivation 7.2 Discrete systems: Logistic map 7.3 Continuous systems 7.4 Lorenz model 7.5 Pathways to chaos 7.6 Measuring chaos 7.7 References for further reading7.8 Exercises8. Scaling in financial time series 8.1 Introduction 8.2 Power laws in financial data 8.3 New developments 8.4 References for further reading8.5 Exercises9. Option Pricing9.1 Financial derivatives9.2 General properties of options9.3 Binomial trees9.4 Black-Scholes theory9.5 References for further reading 9.6 Appendix. The invariant of the arbitrage-free portfolio9.7 Exercises10. Portfolio management 10.1 Portfolio selection 10.2 Capital asset pricing model10.3 Arbitrage pricing theory 10.4 Arbitrage trading strategies10.5 References for further reading10.6 Exercises11. Market risk measurement11.1 Risk measures11.2 Calculating risk 11.3 References for further reading11.4 Exercises12. Agent-based modeling of financial markets 12.1 Introduction12.2 Adaptive equilibrium models12.3 Non-equilibrium price models12.4 Modeling of observable variables 12.5 References for further reading12.6 Exercises

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