Read The Physics of Finance: Predicting the Unpredictable: Can Science Beat the Market? by James Owen Weatherall Free Online
Book Title: The Physics of Finance: Predicting the Unpredictable: Can Science Beat the Market?|
The author of the book: James Owen Weatherall
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Reader ratings: 7.2
Edition: Short Books
Date of issue: February 1st 2013
ISBN 13: 9781780721392
Format files: PDF
The size of the: 897 KB
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This book is a wonderful introduction to history of predicting stock prices using mathematics and concepts from physics. It is basically a history of pricing models; from the earliest mathematical models to the most modern ones. Of course, the best ones are maintained in secret by some super-secretive investment companies, for good reason. The only way a pricing model can be profitable is it to be better than most others being used.
The author, James Weatherall, has a PhD in physics, and is presently an assistant professor of logic and philosophy of science at the University of California, Irvine. He writes with clarity and an engaging style. His narrative follows a logical path, and does not take big diversions along the way.
Now, many of the subjects of this book are not physics at all, but applied mathematics. For example, the so-called "black box" model does not use any physics, but use purely statistical associations that are discovered algorithmically. Their name stems from the fact that they are opaque; they may make accurate predictions, but they offer no insight into the reasons for their predictions. Hence, it is difficult to judge how much confidence should be given to their results. But, for example, a model that predicts an investment strategy that returns a hundred times the S&P 500 over a fifteen-year period is nothing to be sneezed at.
Some of the models are definitely an application of physics concepts, such as the gauge theory model. I find if fascinating that this arcane physics concept has some practical applications in economics and predictions.
Some people blame these computer models for the disastrous economic downturns and stock market volatility that occur from time to time. While Weatherall sympathizes with this attitude, he wholeheartedly endorses the models, as they are simply tools. Sometimes, the assumptions and limitations of these tools are ignored, with dire consequences.
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