Related papers: The thermodynamic approach to market
The conventional economic approaches explore very little about the dynamics of the economic systems. Since such systems consist of a large number of agents interacting nonlinearly they exhibit the properties of a complex system. Therefore…
An heuristic model of the society, as an assembly of weakly interacting individuals, is discussed. The model allows to connect macroscopic phenomena with features of relations between individuals. Addressing to the problem of inequality, a…
During its history, the ultimate goal of economics has been to develop similar frameworks for modeling economic behavior as invented in physics. This has not been successful, however, and current state of the process is the neoclassical…
We consider a financial market in which traders potentially face restrictions in trading some of the available securities. Traders are heterogeneous with respect to their beliefs and risk profiles, and the market is assumed thin: traders…
The origin of economic crises is a key problem for economics. We present a model of long-run competitive markets to show that the multiplicity of behaviors in an economic system, over a long time scale, emerge as statistical regularities…
The enterprise of trying to explain different social and economic phenomena using concepts and ideas drawn from physics has a long history. Statistical mechanics, in particular, has been often seen as most likely to provide the means to…
This study presents a novel approach to modelling economic agents as analogous to spin states in physics, particularly the Ising model. By associating economic activity with spin orientations (up for inactivity, down for activity), the…
The paper discusses various practical consequences of treating economics and finance as an inherently dynamic and chaotic system. On the theoretical side this looks at the general applicability of the market-making pricing approach to…
The paper presents instructive interdisciplinary applications of constrained mechanics calculus in economics on a level appropriate for the undergraduate physics education. The aim of the paper is: 1. to meet the demand for illustrative…
Most finance studies are discussed on the basis of several hypotheses, for example, investors rationally optimize their investment strategies. However, the hypotheses themselves are sometimes criticized. Market impacts, where trades of…
The modelling of financial markets presents a problem which is both theoretically challenging and practically important. The theoretical aspects concern the issue of market efficiency which may even have political implications…
Econophysics is a science in its infancy, born about ten years ago at this time of writing, at the crossing roads of physics, mathematics, computing and of course economics and finance. It also covers human sciences, because all economics…
I study the limit of a large random economy, where a set of consumers invests in financial instruments engineered by banks, in order to optimize their future consumption. This exercise shows that, even in the ideal case of perfect…
This article aims at reviewing recent empirical and theoretical developments usually grouped under the term Econophysics. Since its name was coined in 1995 by merging the words Economics and Physics, this new interdisciplinary field has…
The use of equilibrium models in economics springs from the desire for parsimonious models of economic phenomena that take human reasoning into account. This approach has been the cornerstone of modern economic theory. We explain why this…
In econometrics, the Efficient Market Hypothesis posits that asset prices reflect all available information in the market. Several empirical investigations show that market efficiency drops when it undergoes extreme events. Many models for…
It is still common wisdom amongst economists, politicians and lay people that economic growth is a necessity of our social systems, at least to avoid distributional conflicts. This paper challenges such belief moving from a purely physical…
In economics, construction of perfect models in a way that would be comparable to the standards customary in physical sciences is generally not feasible. In particular, the observed value for an economic equilibrium may deviate…
We revisit the dynamic relationship between domestic economic policy uncertainty and stock markets using the symmetric thermal optimal path (TOPS) method. We observe different interaction patterns in emerging and developed markets. Economic…
We consider the problem of dynamic buying and selling of shares from a collection of $N$ stocks with random price fluctuations. To limit investment risk, we place an upper bound on the total number of shares kept at any time. Assuming that…