From the reviews of the first edition - "Provides an excellent introduction for physicists interested in the statistical properties of financial markets... Some of the book's strongest features are its careful definitions, it detailed examples, and the connection it establishes to physical systems." PHYSICS TODAY

This highly-praised introductory treatment describes parallels between statistical physics and finance - both those established in the 100-year-long interaction between these disciplines, as well as new research results on capital markets. The random walk, well known in physics, is also the basic model in finance, upon which are built, for example, the Black-Scholes theory of option pricing and hedging, or methods of risk control using diversification. This new study edition has been updated with a presentation of several new and significant developments, e.g. the dynamics of volatility smiles and implied volatility surfaces, path integral approaches to option pricing, a new and accurate simulation scheme for options, multifractals, the application of nonextensive statistical mechanics to financial markets, and the minority game.

Inhalt

1. Introduction.- 2. Basic Information on Capital Markets.- 3. Random Walks in Finance and Physics.- 4. The Black-Scholes Theory of Option Prices.- 5. Scaling in Financial Data and in Physics.- 6. Turbulence and Foreign Exchange Markets.- 7. Risk Control and Derivative Pricing in Non-Gaussian Markets.- 8. Microscopic Market Models.- 9. Theory of Stock Exchange Crashes.- A. Appendix: Information Sources.- Notes and References.