Related papers: The thermodynamic approach to market
In a continuous time stochastic economy, this paper considers the problem of consumption and investment in a financial market in which the representative investor exhibits a change in the discount rate. The investment opportunities are a…
This paper studies the links between the descriptions of macroeconomic variables and statistical moments of market trade, price, and return. The randomness of market trade values and volumes during the averaging interval {\Delta} results in…
We formulate thermodynamics of economic systems in terms of an arbitrary probability distribution for a conserved economic quantity. As in statistical physics, thermodynamic macroeconomic variables emerge as the mean value of microeconomic…
We describe the innovations in finances, introduced over the recent decades, and analyze most of the business and regulatory challenges, faced by the financial industry, because of the present disruptive changes in the global capital…
The quantitative aspirations of economists and financial analysts have for many years been based on the belief that it should be possible to build models of economic systems - and financial markets in particular - that are as predictive as…
An investor trades a safe and several risky assets with linear price impact to maximize expected utility from terminal wealth. In the limit for small impact costs, we explicitly determine the optimal policy and welfare, in a general…
This paper discusses serious drawbacks of existing knowledge in macroeconomics and finance in explaining and predicting economic and financial phenomena. Complexity science is proposed as an alternative approach to be used in order to…
The theory of small-system thermodynamics was originally developed to extend the laws of thermodynamics to length scales of nanometers. Here we review this "nanothermodynamics," and stress how it also applies to large systems that subdivide…
We solve a set of selected exercises on rotational motion requiring a mechanical and thermodynamical analysis. When non-conservative forces or thermal effects are present, a complete study must use the first law of thermodynamics together…
Forecasting electricity prices is a challenging task and an active area of research since the 1990s and the deregulation of the traditionally monopolistic and government-controlled power sectors. Although it aims at predicting both spot and…
The European Union Emission Trading System is a prominent market-based mechanism to reduce emissions. While the theory is well understood, we are the first to study the whole cap-and-trade mechanism as a financial market. Analyzing the…
The relationship between thermodynamics and statistical physics is valid in the thermodynamic limit - when the number of particles becomes very large. Here, we study thermodynamics in the opposite regime - at both the nano scale, and when…
We explore the effects of social influence in a simple market model in which a large number of agents face a binary choice: 'to buy/not to buy' a single unit of a product at a price posted by a single seller (the monopoly case). We consider…
The deep problems caused from the limitations of theoretical framework itself can only be clarified by extending and reconstructing of the theoretical framework, we extend classical theoretical framework of thermodynamics, break through the…
I characterize optimal government policy in a sticky-price economy with different types of consumers and endogenous financial constraints in the banking and entrepreneurial sectors. The competitive equilibrium allocation is constrained…
Knowing and modelling the migration phenomena and especially the social and economic consequences have a theoretical and practical importance, being related to their consequences for development, economic progress (or as appropriate,…
Markets have internal dynamics leading to excess volatility and other phenomena that are difficult to explain using rational expectations models. This paper studies these using a nonequilibrium price formation rule, developed in the context…
The 2015 Nobel Prize in Economic Sciences was awarded to Eugene Fama, Lars Peter Hansen and Robert Shiller for their contributions to the empirical analysis of asset prices. Eugene Fama [1] is an advocate of the efficient market hypothesis.…
A deterministic trading strategy by a representative investor on a single market asset, which generates complex and realistic returns with its first four moments similar to the empirical values of European stock indices, is used to simulate…
The theory of thermal macroeconomics (TM) analyses economic phenomena within the mathematical framework of classical thermodynamics, using a set of axioms that apply to the purely macroscopic aspects of an economy [CM]. The theory shows…