CP 4900 - Econophysics

Credits: 3

Physics has a long and storied tradition of applying statistical methods to understand complex systems. Financial markets are complex systems and are amenable to similar treatments. Econophysics is the application of ideas from statistical physics to the financial markets.

In this course, we will introduce the dynamics of markets from a physics perspective. We will introduce the statistical methods needed to model financial markets: classes of Brownian motion, probability distributions and limit theorems. Comparison with other physical systems will be used to develop intuitions for these methods.

Stochastic models for price dynamics will be introduced. Their applicability and limitations will be discussed. We will develop time-dependent models for equity valuations, such as the Black-Scholes equation which is used in options pricing. Real world markets such as equity stock markets, fixed income markets, and commodities markets will be considered.

Prerequisites
CP 4100, BU 4762, CS 2510