Tuesday, December 24, 2013
What’s the book The Physics of Wall Street all about?
The Physics of Wall Street tells the story of how, over the last hundred years, an increasing number of ideas—and, since the late 1970s, people as well—from fields such as physics and mathematics have migrated to finance. These new ideas have changed how financial markets work in profound and lasting ways, and so if we want to understand financial markets, as investors or as policy-makers, we need to understand the role that physics and mathematics has come to play. Most importantly, I argue that, if used carefully, these ideas can provide very effective tools for investors. But they also introduce significant new risks, including some that contributed to the 2007-08 financial crisis. One of my main goals in the book is to give some insight into how we can use these tools more effectively, and hopefully avoid future crises.