<i>An Introduction to Econophysics: Correlations and Complexity in Finance</i>

TLDR

The book explores applying statistical physics concepts to model financial systems. The authors illustrate scaling concepts from probability theory, critical phenomena, and turbulence, apply them to financial time series, and present a stochastic model reproducing key empirical properties. Statistical physics concepts such as stochastic dynamics, correlations, self‑similarity, and scaling enable understanding of economic systems’ global behavior, offering physicists intriguing applications and providing economists with empirical analysis tools and theoretical frameworks for complex interacting subsystems.

Abstract

This book concerns the use of concepts from statistical physics in the description of financial systems. The authors illustrate the scaling concepts used in probability theory, critical phenomena, and fully developed turbulent fluids. These concepts are then applied to financial time series. The authors also present a stochastic model that displays several of the statistical properties observed in empirical data. Statistical physics concepts such as stochastic dynamics, short- and long-range correlations, self-similarity and scaling permit an understanding of the global behaviour of economic systems without first having to work out a detailed microscopic description of the system. Physicists will find the application of statistical physics concepts to economic systems interesting. Economists and workers in the financial world will find useful the presentation of empirical analysis methods and well-formulated theoretical tools that might help describe systems composed of a huge number of interacting subsystems.