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Cuando los físicos asaltaron los…
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Cuando los físicos asaltaron los mercados : la historia de… (alkuperäinen julkaisuvuosi 2012; vuoden 2013 painos)

– tekijä: James Owen Weatherall

JäseniäKirja-arvostelujaSuosituimmuussijaKeskimääräinen arvioMaininnat
1995105,695 (3.85)1
After the economic meltdown of 2008, Warren Buffett famously warned, "beware of geeks bearing formulas." But as James Weatherall demonstrates, not all geeks are created equal. 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. Taking us from fin-de-siecle Paris to Rat Pack-era Las Vegas, from wartime government labs to Yippie communes on the Pacific coast, Weatherall shows how physicists successfully brought their science to bear on some of the thorniest problems in economics, from options pricing to bubbles. The crisis was partly a failure of mathematical modeling. But even more, it was a failure of some very sophisticated financial institutions to think like physicists. Models-whether in science or finance-have limitations; they break down under certain conditions. And in 2008, sophisticated models fell into the hands of people who didn't understand their purpose, and didn't care. It was a catastrophic misuse of science. The solution, however, is not to give up on models; it's to make them better. Weatherall reveals the people and ideas on the cusp of a new era in finance. We see a geophysicist use a model designed for earthquakes to predict a massive stock market crash. We discover a physicist-run hedge fund that earned 2,478.6% over the course of the 1990s. And we see how an obscure idea from quantum theory might soon be used to create a far more accurate Consumer Price Index. Both persuasive and accessible, The Physics of Wall Street is riveting history that will change how we think about our economic future.… (lisätietoja)
Jäsen:Edgar.Ramirez
Teoksen nimi:Cuando los físicos asaltaron los mercados : la historia de cómo se trató de predecir lo impredecible
Kirjailijat:James Owen Weatherall
Info:[Barcelona] Ariel 2013
Kokoelmat:Oma kirjasto
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The Physics of Wall Street: A Brief History of Predicting the Unpredictable (tekijä: James Owen Weatherall) (2012)

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näyttää 5/5
A fun, readable history of the influence of physics on finance. Well-written and flows very well, essentially a collection of vignettes. The thesis is relatively simple but in our days contrarian-financial models should not be abandoned, but used with an eye towards improvement and with some knowledge of their limitations.

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 terms), as well as the sociology of physics and finance. For example, the "father" of modern mathematical finance, a frenchman named Bachelier, laid down the foundations of finance almost a century ago (including random walk, Brownian motion, normally distributed price, martingales and even a proto-EMH. He argued that prices were random because news is random, and prior knowledge is already "priced in"), but because the application of math to finance was unfashionable at the time (at the time the academic circles focused on abstract math), his work never received the support or wide-spread recognition it should have. In contrast, Osborne, another physicist turned financial mathematician came of age after the synthesis of basic research and industrial support (Dupont's nylon and the Manhattan Project) already occurred, allowing his somewhat aimless research to occur. 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. Similarly, Weatherall argues that Malaney's proposal to use gauge theory (a physics concept) to measure inflation, was sunk by academics who were tasked with ad hocing a method to measure CPI with the goal of reducing social security payouts. Weatherall thinks that physicists can be very useful in this sense, by injecting fresh ways and more nuanced understanding into the "old boy's club" of economic academia. A particularly promising example is the importation of how tanks explode and when bubbles burst (both study how the appearance of coordination between random fissures can lead to catastrophic failure similar to herding behavior, what Sornette calls dragon king theory, the idea that dragon kings can be predicted by certain periodic indica). Another example cited, the enormous success of Renaissance, which hires no economics or finance students, only those trained in mathematics and physics (though the secrecy of how Renaissance makes its money, makes discussions of its strategies rather speculative [a similar complaint occurs for "more money than god"]. This is the same complaint I have about the chapter on the "prediction company". Weatherall discusses how the hedge fund made money applying chaos theory concepts, such as attractors and initial conditions to pioneer black box statistical modeling [mostly off of statistical correlations without conjectures about underlying models], but admits that the firm is rather secretive [making the firm's success itself...a black box].).

I particularly liked the treatment of the simplifying assumptions found in models. There is I think, a tendency for detractors and pundits to dismiss a model by its assumptions alone. Weatherall makes the good point that the process of modeling is iterative, and that good modelers recognize their assumptions and improve on them. This happened with Edward Thorp, who improved on a blackjack model by realizing that cards dealt were not independent but actually dependent on the deck (starting the tactic of cardcounting). More dramatic is the story of the normal curve. Bachelier assumed that prices were normally distributed, but this lead to oddities such as negative prices. Osborne recognized that it was not prices, but returns that were normally distributed, implying a log-normal price distribution. Mandelbrot argued that actual market returns are not normal distributions but levy-stable distributions with fatter tails than the normal distribution (later research indicated that this, was also not technically correct), and as a consequence did not converge towards an average (reviewed also of course, is Mandelbrot's work on fractals and measurement theory). 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. At the time, it was unclear how to incorporate or even work with Mandelbrot's levy-stable distributions. However, as Weatherall notes, the market's volatility smile after 87' (which Weatherall interprets as the market's belief that out the money options were worth more than what Black-Scholes predicted) and O'Connor's modifications to the Black-Scholes model were indications that practitioners had indeed considered challenging the normal distribution assumption. By doing so, they played the role of "smart money" that EMH assumes.

The book concludes with three lessons about finance. 1) The best models are not ignorant of human nature but attempt to incorporate them (despite behavioral economics attacks on models, they themselves often produce models). For example, Osborne's conjecture that returns were log-normal was inspired by an old psychological experiment that people changes in sensations based on the starting sensation. 2) The misuse of models does not justify their wholesale abandonment, only that the limitations of models be recognized and improved on (contra Taleb). 3) Complicated financial instruments such as derivatives are tools, that be used correctly for good or incorrectly for bad.

A somewhat miscellaneous fact I find interesting, is the idea to only bet a fraction of wealth by advantage/payout as an optimal betting strategy.

A great book for anyone looking for a nuanced but non-technical view of finance, and a good counterweight to the very opinionated pundits that seem to have sprung up post-2008 like daisies. Not to mention, very enjoyable to read, both in readability and entertainment value. ( )
  vhl219 | Jun 1, 2019 |
Hard to stop reading. More about the history of physics on Wall Street than about what the physics of Wall Street is... but that is kind of his point. ( )
  chellerystick | Jun 21, 2016 |
Story-based overview of some of the various physicists and mathematicians who have done work in finance. Very light on technical detail. Reads quick. ( )
  jcvogan1 | Nov 12, 2015 |
Good book for the novice physicist and the stock market practioner. Physicists seem to be showing up in many other disciplines as well they should since the world largely operates through the laws they have discovered. Mathematics is the basis for physics and similarly for the stock market so why not look at where the two cross. This book is easy to read, gives a good historical background of physicists (scientists) who touched on issues facing markets, and reinforces the idea that predicting the market is in some way predictable. Read it before you dismiss it. ( )
  gdemange | May 23, 2013 |
Warren Buffett famously warned, “beware of geeks bearing formulas.” After the Great Panic of 2008, many pundits placed the blame on derivatives and other “complex financial instruments.” That would lead one to believe that the blame lies with the physicists and mathematicians who dreamed them up. James Owen Weatherall decided to look behind that blame and explore the history of how physicists came to Wall Street. The result is The Physics of Wall Street: A Brief History of Predicting the Unpredictable.

The book is an engaging exploration of the men who took turns trying to create mathematical formulas to explain stock price movement, with the hope of predicting that movement.

The early models always failed. Weatherall pins the crashes in 1987, 1997, and 2008 on the failure of the models. Although he shifts the blame from the physicists to the heads of the Wall Street firms. Their failure came about because they failed to think like physicists. Models, whether in science or finance, have limitations. They break down at the edges and under certain conditions. In each of those financial crises these sophisticated models fell into the hands of people who didn’t understand their limitations.

Don’t think the book is focused on financial models and mathematical derivatives. It’s focused on the individuals, their stories, the steps they took before creating their models, how their models ere adopted (or not), and, ultimately, how their models failed.

One item I found fascinating was that most of the physicists starring in the book took their first steps towards wealth creation in gambling, and not finance. You can make your own joke about that. Each took an attempt to better define probabilities so they could make better wagers. Early on, it was dice games. Blackjack was popular. One gentleman even tried to devise a computer to predict roulette. Ultimately, they each discovered that there was more money to be made on Wall Street.

Each model got better and better. But each ultimately failed. Some of that can be traced back to success causing a failure. As more firms adopted the model, their behavior changed and therefore the model became based on outdated behavior. Ultimately, the book seems to lend credence to Taleb’s Black Swan theory. The improbable will happen and all the financial models fail to account for the improbable financial calamities happening more often than the models predict.

I have to admit that I thought the book might be a dry slog on finance and probability. But, it was surprisingly enjoyable to read. If you have any interest in the quant side of Wall Street or probability theories, this book provides a great historical background.

The publisher was nice enough to send me preview in hopes that I would write about the book. It goes on sale January 2, 2013.

http://www.compliancebuilding.com/2012/12/27/the-physics-of-wall-street-and-its-... ( )
  dougcornelius | Dec 20, 2012 |
näyttää 5/5
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Englanninkielinen Wikipedia (2)

After the economic meltdown of 2008, Warren Buffett famously warned, "beware of geeks bearing formulas." But as James Weatherall demonstrates, not all geeks are created equal. 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. Taking us from fin-de-siecle Paris to Rat Pack-era Las Vegas, from wartime government labs to Yippie communes on the Pacific coast, Weatherall shows how physicists successfully brought their science to bear on some of the thorniest problems in economics, from options pricing to bubbles. The crisis was partly a failure of mathematical modeling. But even more, it was a failure of some very sophisticated financial institutions to think like physicists. Models-whether in science or finance-have limitations; they break down under certain conditions. And in 2008, sophisticated models fell into the hands of people who didn't understand their purpose, and didn't care. It was a catastrophic misuse of science. The solution, however, is not to give up on models; it's to make them better. Weatherall reveals the people and ideas on the cusp of a new era in finance. We see a geophysicist use a model designed for earthquakes to predict a massive stock market crash. We discover a physicist-run hedge fund that earned 2,478.6% over the course of the 1990s. And we see how an obscure idea from quantum theory might soon be used to create a far more accurate Consumer Price Index. Both persuasive and accessible, The Physics of Wall Street is riveting history that will change how we think about our economic future.

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