I highly recommend this book for anyone interested in finance. If prompted, choose Run or Save, then follow the rest of the prompts to complete the update. And we see how an obscure idea from quantum theory might soon be used to create a far more accurate Consumer Price Index. Please review the types of cookies we use below. I particularly liked the treatment of the simplifying assumptions found in models.
Anything related to successful modeling or predictions are always awe inspiring to me and I eagerly long to be one of those success stories by stumbling into the hidden pattern in the data. Were the physicists really at fault? A better review is worth putting up. He deals straightforwardly with the problem of just how predictable we should expect prices to be. You don't have to be a physicist to catch all the author wants us to understand. Towards the end is a desperate plea not to strip physics away from Wall Street. Models-whether in science or finance-have limitations; they break down under certain conditions. Ed Thorp and Fisher Black used math tools in day-to-day trading.
A chapter near the end of the book introduces gauge theory without doing a very thorough job of telling what the implications are, or of how this could be used to make money, or predict a market--which all of the other chapters and methods do. Equations turn books to depleted uranium on the shelves, but a few equations would have been nice. People glom onto opinions, especially after a major stock-market collapse, and everyone has opinions to offer. The problem that Weatherall glossed over, is that academics haven't exactly been able to predict the unpredictable. I do remember making note of works cited in the footnotes and bibliography, since the primary sources seemed like they would be more meaty, satisfying, and interesting. He holds graduate degrees from Harvard, the Stevens Institute of Technology, and the University of California, Irvine, where is presently an assistant professor of logic and philosophy of science.
It was a catastrophic misuse of science. Second, he is extremely overly enamored with the idea of the use of physics in financial markets. However, what made him lose one more star was his epilogue. A book which reveals the people and ideas on the cusp of a new era in finance. The Physics of Wall Street: A Brief History of Predicting the Unpredictable by James Owen Weatherall was an interesting exploration of the history of probability, economics, and physics and how scholars in all those fields have crossed discipline lines and collaborated to understand and predict economic forces.
It was a catastrophic misuse of science. It should definitely have another title: Physicists of Wall Street. And, as a side note, if you have ever heard the Hedge Fund named Renaissance mentioned in hushed and reverent tones the close of the book should inspire you to read further. Weatherall, the difference between those two situations is obvious. Similarly, Black of Black-Scholes became so celebrated because at the time, the powers that be were looking to start a derivatives market, and the end of the Bretton Woods system created floating exchange rates that would led to an explosion of currency derivatives. The book is an interesting exploration of both the financial ideas that physicists brought to wall street Weatherall does a good job of explaining the ideas in non-technical A fun, readable history of the influence of physics on finance. We see a geophysicist use a model designed for earthquakes to predict a massive stock market crash.
He talks about randomness a lot, but he seems to be thinking of it as if it were statistical mechanics, where exact predictions can nevertheless be made. Weatherall makes the good point that, financial academia properly set aside Mandelbrot's discovery and used the simplifying assumption that returns were normally distributed in order to build more knowledge. A model, meanwhile, is a kind of simplified picture of how a physical process or system works. Ergo must the target audience be physicists that are looking for a historical overview of the influence of physics on to economics. I thoroughly enjoyed this brief history of predicting the unpredictable. Weatherall reveals the people and ideas on the cusp of a new era in finance.
Both persuasive and accessible, The Physics of Wall Street is riveting history that will change how we think about our economic future. He has written for Slate and Scientific American. The section on a Louis Bachelier, whose pioneering work was largely ignored by his peers, was particularly fascinating. The solution, however, is not to give up on models; it's to make them better. But even more, it was a failure of some very sophisticated financial institutions to think like physicists.
His narrative follows a logical path, and does not take big diversions along the way. Osborne recognized that it was not prices, but returns that were normally distributed, implying a log-normal price distribution. Sometimes, the assumptions and limitations of these tools are ignored, with dire consequences. It was said that this might best have an impact on public policy. He does a very good job of popularizing the science involved.
There is a surprisingly deep connection between physics and quantitative economics--and we A great primer or history of the mathematics of finance, and the interplay between theory and empirical results. Weatherall reveals the people and ideas on the cusp of a new era in finance. Now, many of the subjects of this book are not physics at all, but applied mathematics. Were the physicists really at fault? While many of the mathematicians and software engineers on Wall Street failed when their abstractions turned ugly in practice, a special breed of physicists has a much deeper history of revolutionizing finance. The solution, however, is not to give up on models; it's to make them better.