Introduction to Econophysics: Correlations and Complexity in Finance [Hardcover]

Rosario N. Mantegna (Author), H. Eugene Stanley (Author)

Book Description

ISBN-10: 0521620082 | ISBN-13: 978-0521620086 | Publication Date: November 13, 1999 0

Statistical physics concepts such as stochastic dynamics, short- and long-range correlations, self-similarity and scaling, permit an understanding of the global behavior of economic systems without first having to work out a detailed microscopic description of the system. This pioneering text explores the use of these concepts in the description of financial systems, the dynamic new specialty of econophysics. The authors illustrate the scaling concepts used in probability theory, critical phenomena, and fully-developed turbulent fluids and apply them to financial time series. They also present a new stochastic model that displays several of the statistical properties observed in empirical data. Physicists will find the application of statistical physics concepts to economic systems fascinating. Economists and other financial professionals will benefit from the book's empirical analysis methods and well-formulated theoretical tools that will allow them to describe systems composed of a huge number of interacting subsystems.

Editorial Reviews

Review

"Clearly and concisely written, this book provides an excellent introduction to the problem of understanding the empirical statistical properties of prices." Doyne Farmer, Prediction Company, Santa Fe and the Santa Fe Institute

"[A] clear summary of many of the statistical properties of stock prices ... will prove useful to reseachers in several disciplines." /s Journal of Economic Literature

"Mantegna...and Stanley...draw on concepts from statistical physics to describe financial systems...[and]...illustrate the scaling concepts used in probability theory, in critical phenomena, and in fully developed turbulent fluids, and apply them to financial time series to gain insight into the behavior of financial markets." Reference & Research Book News

"This book is beneficial to both the financial economicist and the physicist...An Itroduction to Econopysics Correlations and Complexity in Finance provides a valuable picture of the relationship between physics and financial economics." Discrefe Dynamics in NAture and Society 2001 vol.6

Book Description

In recent years there has been a reciprocal interest between physicists and economists in finding common research approaches. This interest has been mainly triggered by the large amount of carefully recorded economic data now easily available, and by the emergence in physics of new results and paradigms in the study of critical phenomena, disordered systems and nonlinear dynamical systems. This book introduces the concepts and methods that are emerging from this renewed activity, in a straightforward direct style designed to appeal to individuals with either a science or economics background.

Product Details

• Hardcover: 162 pages
• Publisher: Cambridge University Press (November 13, 1999)
• Language: English
• ISBN-10: 0521620082
• ISBN-13: 978-0521620086
• Product Dimensions: 10.1 x 7 x 0.6 inches
• Shipping Weight: 1 pounds (View shipping rates and policies)
• Average Customer Review: 4.0 out of 5 stars  See all reviews (11 customer reviews)
• Amazon Best Sellers Rank: #1,258,952 in Books (See Top 100 in Books)

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Most Helpful Customer Reviews

24 of 24 people found the following review helpful:

3.0 out of 5 stars target audience not defined, September 21, 2003

By 

Serguei Katsev (Ottawa, Canada) - See all my reviews
(REAL NAME)   

This review is from: Introduction to Econophysics: Correlations and Complexity in Finance (Hardcover)

I find the book rather poorly written in the aspect of providing links between statistical physics and its application in economics. As a physicist with a background in stochastic processes, I was looking for an introduction to their applications to economic analysis, complete with examples and discussion of the methods' limitations. The book was somewhat disappointing in this respect. Quite often, in many chapters, the necessary math is explained, then some aspects of how it is manefest in economical data are presented and then the chapter ends, leaving the reader wonder what the specific cases may be and if it is practical to use those methods at all. Above all, there is very little discussion as to what the results actually mean, in economical terms.
I believe the book may be helpful for reseachers active in this field but I would not recommend it as a first introduction to econophysics. For economists, the math may be rather difficult to go through as some of the fundamental concepts are not defined consistently. For physicists with no previous exposure to econophysics, I would prefer to see more economics.

23 of 24 people found the following review helpful:

4.0 out of 5 stars First in the new field, June 5, 2002

By 

Professor Joseph L. McCauley "Joseph L. McCauley" (Austria+Texas) - See all my reviews

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This review is from: Introduction to Econophysics: Correlations and Complexity in Finance (Hardcover)

I found several parts of this book useful while preparing lectures for an introductory econophysics course in Fall, 2001. The discussions of convolutions of distributions, Levy distributions and scaling are well-written and easy to follow. In the brief discussion of the St. Petersburg Paradox I missed a critical discussion of expected utility, which was invented by Bernoullli to 'resolve' that paradox. Spurred by von Neumann and Morgenstern, neo-classical economics relies on the idea of expected utility, which seems empirically to be wrong. The chapter on time correlations is also very readable (although Wiener processes are not 1/f^2 noise!). ARCH and GARCH methods are discussed, saving the student from the pain of reading badly-written papers by mathematically-minded economists, but the chapters on options are too brief with nothing new. The best introduction to options is still the original Black-Scholes paper (excepting their erroneous claim that CAPM and the delta-hedge strategy produce option pricing pdes that agree with each other). Also, it would have been nice to have seen a discussion of CAPM. The discussion of algorithmic complexity left me cold (see my earlier books and papers on nonlinear dynamics), and I would like to have seen a critical discussion of the EMH. These criticisms are ok, though, the gaps leave something for the rest of us to work on.

35 of 48 people found the following review helpful:

3.0 out of 5 stars The second and better book on the topic and...., January 14, 2000

By A Customer

This review is from: Introduction to Econophysics: Correlations and Complexity in Finance (Hardcover)

let us not forget it on the MARKET. Contrary to what has been suggested in a review on the econophysics forum, I find this book superior to its competitor by Bouchaud and Potters soon to appear in english at CUP. It is more concise, which is not necessarily an advantage, but in the light of what is available it certainly is one. I am mostly talking about the stuff on pdfs and the market models. What econophysicists have to say about actual financial instruments apart from the fact that they criticize the underlying probabilities used I can still not see, but well is physics not full of rediscoveries, so why not export these embarrassingly (and with arrogance please) outside of physics?

One last point concerns the style in which this and Bouchaud's book are written. I believe that econophysicists have yet to find the proper language in which to talk. Thus, most literature is written in a setting most appealing for statistical physicists, as it strongly hinges on that subject's background and contemporary culture. There are obvious reasons for this, but altogether this needs to be obliterated. Only then econophysics grow into a mature self-consistent branch of the natural sciences. This book is far from attaining such a goal and the comprehensive treatise on physics and economics remains to be written. It is unlikely that this will happen tomorrow given the immaturity of the scene, the actors and the play.

Altogether a book worth the read.