Related papers: Finance from the viewpoint of physics
In the framework of risk management, for the study of the sensitivity of pricing and hedging in stochastic financial models to changes of parameters and to perturbations of the stock prices, we propose an error calculus which is an…
In this mostly pedagogical tutorial article a brief introduction to modern geometrical treatment of fluid dynamics and electrodynamics is provided. The main technical tool is standard theory of differential forms. In fluid dynamics, the…
Principles of financial product synthesis from a few basic financial products constitute an interesting research topic inspired by Islamic finance. We make an effort to answer general questions that should be answered before starting to…
This is a short commentary piece that discusses how the methods used in the natural sciences can apply to economics in general and financial markets specifically.
The optical model is a fundamental tool to describe scattering processes in nuclear physics. The basic input is an optical model potential, which describes the refraction and absorption processes more or less schematically. Of special…
There is a widespread recent interest in using ideas from statistical physics to model certain types of problems in economics and finance. The main idea is to derive the macroscopic behavior of the market from the random local interactions…
We shall study backward stochastic differential equations and we will present a new approach for the existence of the solution. This type of equation appears very often in the valuation of financial derivatives in complete markets.…
This review presents the set of electricity price models proposed in the literature since the opening of power markets. We focus on price models applied to financial pricing and risk management. We classify these models according to their…
A review of fundamentals and physical applications of fractional quantum mechanics has been presented. Fundamentals cover fractional Schr\"odinger equation, quantum Riesz fractional derivative, path integral approach to fractional quantum…
Fundamental physics today is best defined operationally: it is the program of identifying the microscopic degrees of freedom, symmetries, and dynamical laws that (i) reproduce the Standard Model (SM) of particle physics, General Relativity…
In this article, we give a brief informal introduction to Malliavin Calculus for newcomers. We apply these ideas to the simulation of Greeks in Finance. First to European-type options where formulas can be computed explicitly and therefore…
Three types of equations of mathematical physics, namely, the equations, which describe any physical processes, the equations of mechanics and physics of continuous media, and field-theory equations are studied in this paper. In the first…
Stylized facts can be regarded as constraints for any modeling attempt of price dynamics on a financial market, in that an empirically reasonable model has to reproduce these stylized facts at least qualitatively. The dynamics of market…
The Green's function method has applications in several fields in Physics, from classical differential equations to quantum many-body problems. In the quantum context, Green's functions are correlation functions, from which it is possible…
The Pareto model is very popular in risk management, since simple analytical formulas can be derived for financial downside risk measures (Value-at-Risk, Expected Shortfall) or reinsurance premiums and related quantities (Large Claim Index,…
This contribution summarizes and explains various principles from physics which are used for the simulation of traffic flows in large street networks, the modeling of destination, transport mode, and route choice, or the simulation of urban…
Combustion reaction kinetics models are used for the description of a special class of bursty Financial Time Series. The small number of parameters they depend upon enable financial analysts to predict the time as well as the magnitude of…
In general it is not clear which kind of information is supposed to be used for calculating the fair value of a contingent claim. Even if the information is specified, it is not guaranteed that the fair value is uniquely determined by the…
The paper describes a funding mechanism called Quadratic Finance (QF) and deploys a bit of calculus to show that within a very clean and simple linear model QF maximizes social utility. They differentiate the social utility function. The…
We introduce the formalism of generalized Fourier transforms in the context of risk management. We develop a general framework to efficiently compute the most popular risk measures, Value-at-Risk and Expected Shortfall (also known as…