Physics and financial economics (1776–2014): puzzles, Ising and agent-based models

  title={Physics and financial economics (1776–2014): puzzles, Ising and agent-based models},
  author={Didier Sornette},
  journal={Reports on Progress in Physics},
  • D. Sornette
  • Published 1 April 2014
  • Economics
  • Reports on Progress in Physics
This short review presents a selected history of the mutual fertilization between physics and economics—from Isaac Newton and Adam Smith to the present. The fundamentally different perspectives embraced in theories developed in financial economics compared with physics are dissected with the examples of the volatility smile and of the excess volatility puzzle. The role of the Ising model of phase transitions to model social and financial systems is reviewed, with the concepts of random… 

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