Applying physics to economics/finance

In summary, the conversation discusses the speaker's interest in applying physics concepts to economics or finance for their senior project. They are advised to look into C. Schinckus' work on "econophysics" and to be aware of the skepticism surrounding it. The conversation also mentions the involvement of physicists and mathematicians in hedge fund calculations.
  • #1
rh2014
1
0
Hello everybody,

I am currently a junior majoring in physics and economics and I am starting to think about my senior projects.
For my senior project next year, I would like to see if I can apply any physics "concept" to economics or finance. Do you know what would be the best approach for this research?

Thanks!
 
Physics news on Phys.org
  • #2
You might want to look at C. Schinckus, Am. J. Phys. v.78, p.325 (2010), first, and then do your own search on "econophysics" and why a lot of people are skeptical of it. Rick Bookstaber, a senior policy advisor at the SEC, even have a blog post on this that you might find in your search.

Zz.
 
  • #3
I believe "quants" are big on wall street calculating hedge funds.
 
  • #4
Yup. Physicists apparently beat out even mathematicians here due to the applied aspects.
 
  • #5
I can't quote a source but I heard they use a diffusion type model.
 

1. How can physics be applied to economics and finance?

Physics can be applied to economics and finance by using mathematical models and principles, such as calculus and statistics, to analyze and predict financial and economic systems. This approach is known as econophysics, and it has been used to study various phenomena in the financial markets, such as stock price movements and risk management.

2. What are some examples of how physics has influenced economics and finance?

Physics has influenced economics and finance in several ways, including the development of the Black-Scholes model for pricing options, the application of chaos theory to understand market fluctuations, and the use of network theory to analyze financial networks and their interconnectedness.

3. How does physics help in understanding financial risk?

Physics can help in understanding financial risk by providing tools and models to analyze and quantify risk. For example, physicists have developed the concept of value at risk (VaR), which is a statistical measure of the maximum potential loss in a financial portfolio over a specified time horizon.

4. Can physics predict stock prices?

While physics can provide insights and tools for analyzing financial markets, it is not possible to accurately predict stock prices due to the complex and dynamic nature of the markets. However, physicists have developed models and algorithms that can help in making informed investment decisions and managing risk.

5. Are there any limitations to applying physics to economics and finance?

Yes, there are limitations to applying physics to economics and finance. The financial markets are highly complex and unpredictable, and many factors beyond mathematical models and principles can influence them. Additionally, economic and financial systems may not always follow the laws and principles of physics, as they involve human behavior and decision-making.

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