2002 물리학 특 강 세미나 Mutual attractions: Physics & Finance Div. of Natural Sciences Shin, You Sik

2002 물리학 특 강 세미나 Physicists in the markets Rocket scientists: –Mathematical and computational skills –Abilities to analyze extremely complex problems. Markets for: –Interest rates, debts of emerging countries, and “Derivatives” –Banks and financial consultancies

2002 물리학 특 강 세미나 Random walks in sci. and fin. 1 Louis Bachelier’s model –For market crashes –Ideas from Einstein’s Brownian motion and theoretical finance –Model for price fluctuations Model predicts share prices, interest rates, etc…

2002 물리학 특 강 세미나 Random walks in sci. and fin. 2 Mandelbrot’s “fat tailed” model → applications of complexity problem Analogy between Physics and Finance –Price fluctuations : Ideal gas equation –Macroscopic models ~ Microscopic model: deals with the interaction between traders

2002 물리학 특 강 세미나 Signals and Noise 1 On the stock market –Nonlinear effect of “crashes” –Connection with critical point Log-periodic corrections ▷

2002 물리학 특 강 세미나 Signals and Noise 2 Concept of “Noise” –Langevin noise… Rational-agent hypothesis –Trade-off between profit and risk cf.> rational-driver model in Traffic Eng. –To maximize anyone’s speed Modern “philosophical stone” –Quest for risk-free profit!

2002 물리학 특 강 세미나 Complexity in action Levels of interest –Elastic spring? Options and Futures market Cf.> Call option, Put option To minimize the risk; insurance Red line (1992) Green line (1995) Blue line (1998)

2002 물리학 특 강 세미나 cf.> Black-Scholes theory –The Theory for Option pricing… –Resemblance with diffusion equation –Using the Gaussian model Where V(S,t) is the value of the derivative, S is the price of the root asset, t is time, σ is the volatility and r is the risk-free interest rate.

2002 물리학 특 강 세미나 Options for the future Physicists’ tool (for economics and finance) –Monte Carlo simulation –Path-integral technique –Random matrix theory Physicists in the Wall street

2002 물리학 특 강 세미나 From ( )