The Physics of Wall Street

The Physics of Wall Street

A Brief History of Predicting the Unpredictable

eBook - 2013
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Houghton
A look inside the world of “quants” and how science can (and can’t) predict financial markets: “Entertaining and enlightening” (The New York Times).
 
After the economic meltdown of 2008, Warren Buffett famously warned, “beware of geeks bearing formulas.” But while many of the mathematicians and software engineers on Wall Street failed when their abstractions turned ugly in practice, a special breed of physicists has a much deeper history of revolutionizing finance. Taking us from fin-de-siècle Paris to Rat Pack–era Las Vegas, from wartime government labs to Yippie communes on the Pacific coast, James Owen Weatherall shows how physicists successfully brought their science to bear on some of the thorniest problems in economics, from options pricing to bubbles.
 
The crisis was partly a failure of mathematical modeling. But even more, it was a failure of some very sophisticated financial institutions to think like physicists. Models—whether in science or finance—have limitations; they break down under certain conditions. And in 2008, sophisticated models fell into the hands of people who didn’t understand their purpose, and didn’t care. It was a catastrophic misuse of science. The solution, however, is not to give up on models; it’s to make them better.
 
This book reveals the people and ideas on the cusp of a new era in finance, from a geophysicist using a model designed for earthquakes to predict a massive stock market crash to a physicist-run hedge fund earning 2,478.6% over the course of the 1990s. Weatherall shows how an obscure idea from quantum theory might soon be used to create a far more accurate Consumer Price Index. The Physics of Wall Street will change how we think about our economic future.
 
“Fascinating history . . . Happily, the author has a gift for making complex concepts clear to lay readers.” —Booklist

A young scholar tells the story of the physicists and mathematicians who created the models that have become the basis of modern finance and argues that these models are the solution to—not the source of—our current economic woes.


Baker & Taylor
A Harvard scholar challenges popular beliefs to argue that mathematical models can provide solutions to current economic challenges, citing the pivotal historical contributions of physicists to Wall Street while explaining that the economic meltdown of 2008 was based on a misunderstanding of scientific models rather than on the models themselves. 35,000 first printing.

Publisher: Boston : Houghton Mifflin Harcourt, 2013
ISBN: 9780547618296
Branch Call Number: EBOOK
Characteristics: 1 online resource
Additional Contributors: OverDrive, Inc

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m
mckeett
Jan 27, 2017

Did I miss something here? It seemed to me this was a description abot how physicists have found employment in analyzing and predicting stock market trends using calculations based on chaos theory. A hedge fund made up of only physicists - no business grads. Now there's a new one. Being a physicist myself, I am always interested in employment opportunities but alas too late for me. But certainly a plausible discussion by the author about how physics of large systems can be applied to the stock market.

s
StarGladiator
Oct 16, 2013

Once again, I must call out this author and his specious reframing of events, and in almost a criminal manner! The best way to prevent such another occurrence? Jail the super-crooks involved in the first occurrence, instead of still allowing them free rein! John Paulson, Alan Greenspan, Robert Rubin, Athur Levitt, Timothy Geithner, Maurice Greenberg, Blythe Masters, Larry Summers, the super-rich who either employed and/or directed them, and so on and so forth!

johnf108 Mar 03, 2013

This is an excellent book in presenting the development of quantitative finance from Bachelier through Black-Scholes and to more recent work on different assumptions and ways of looking at data.
While not talking much about specific financial crisis, it does show why some happened and how how to watch for them.

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