Quantitative Finance for Physicists

Quantitative Finance for Physicists

An Introduction

1st Edition - December 10, 2004

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  • Author: Anatoly B. Schmidt
  • eBook ISBN: 9780080492209

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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.

Key Features

  • Short, self-contained book for physicists to master basic concepts and quantitative methods of finance
  • Growing field—many physicists are moving into finance positions because of the high-level math required
  • Draws on the author's own experience as a physicist who moved into a financial analyst position


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

Table of Contents

  • Contents
    1. Introduction
    2. Financial Markets
    2.1 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 The idea The critique
    2.4 Pathways for further reading
    2.5 Exercises
    3. Probability distributions
    3.1 Basic definitions
    3.2 Some important distributions
    3.3 Stable distributions and scale invariance
    3.4 References for further reading
    3.5 Exercises
    4. Stochastic processes
    4.1 Markov process
    4.2 Brownian motion
    4.3 Stochastic differential equation. Ito’s lemma
    4.4 Stochastic integral
    4.5 Martingales
    4.6 References for further reading
    4.7 Exercises
    5. Time series analysis
    5.1 Autoregressive and moving average models
    5.2 Trends and seasonality
    5.3 Conditional heteroskedascisity
    5.4 Multivariate time series
    5.5 References for further reading and econometric software
    5.6 Exercises
    6. Fractals
    6.1 Basic definitions
    6.2 Multifractals
    6.3 References for further reading
    6.4 Exercises
    7. 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 reading
    7.8 Exercises
    8. Scaling in financial time series
    8.1 Introduction
    8.2 Power laws in financial data
    8.3 New developments
    8.4 References for further reading
    8.5 Exercises
    9. Option Pricing
    9.1 Financial derivatives
    9.2 General properties of options
    9.3 Binomial trees
    9.4 Black-Scholes theory
    9.5 References for further reading
    9.6 Appendix. The invariant of the arbitrage-free portfolio
    9.7 Exercises
    10. Portfolio management
    10.1 Portfolio selection
    10.2 Capital asset pricing model
    10.3 Arbitrage pricing theory
    10.4 Arbitrage trading strategies
    10.5 References for further reading
    10.6 Exercises
    11. Market risk measurement
    11.1 Risk measures
    11.2 Calculating risk
    11.3 References for further reading
    11.4 Exercises
    12. Agent-based modeling of financial markets
    12.1 Introduction
    12.2 Adaptive equilibrium models
    12.3 Non-equilibrium price models
    12.4 Modeling of observable variables
    12.5 References for further reading
    12.6 Exercises

Product details

  • No. of pages: 184
  • Language: English
  • Copyright: © Academic Press 2004
  • Published: December 10, 2004
  • Imprint: Academic Press
  • eBook ISBN: 9780080492209

About the Author

Anatoly B. Schmidt

Dr. Anatoly.B. Schmidt holds M.S. and Ph.D. in Physics from Latvian

University, Riga. For more than 10 years, Dr. Schmidt was the lead

modeling scientist at the Latvian Center for Biological, Medical, and

Ecological Research. In the 90s, he was engaged for several years in

development of computational chemistry software and in its applications

to life sciences. His research interests include modeling "of

anything", from biological processes to financial markets. His major

fields of expertise are the statistical physics, in particular, the

theory of fluids, (poly)electrolytes and plasmas, the solvation theory

and its applications in biology, and, most recently, quantitative

finance. Dr. Schmidt is the author of the book "Statistical

thermodynamics of classical plasmas" (Energoatomizdat, Moscow, 1991),

and more than 40 publications in biophysics, statistical and chemical

physics, and econophysics. Dr. A.B. Schmidt has been a financial data

analyst since 1997.

Affiliations and Expertise

Financial Data Analyst

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