The Physics of Wall Street
"Beware of nerds bringing formulae," Warren Buffett famously cautioned after the 2008 financial crisis. However, not all geeks are made equal, as James Weatherall proves. While many Wall Street mathematicians and software engineers failed when their abstractions became ugly in practise, physicists have a much longer track record of transforming finance. Weatherall takes us from fin-de-siècle Paris to Rat Pack-era Las Vegas, from wartime government labs to Yippie communes on the Pacific coast, to explain how physicists successfully applied their knowledge to some of economics' most difficult issues, such as option pricing and bubbles.
Part of the reason for the crisis was a lack of mathematical modelling. It was also a failing of some highly smart financial firms to think like scientists. Models have constraints, whether in science or finance, and they fail under specific circumstances. In 2008, sophisticated models ended up in the hands of persons who didn't comprehend or care about their function. It was a colossal misunderstanding of science.
The solution, on the other hand, is not to abandon models; rather, to improve them. Weatherall exposes the people and ideas on the verge of a new financial age. A geophysicist predicts a huge stock market meltdown using a model meant for earthquakes. Over the span of the 1990s, we uncover a physicist-run hedge fund that made 2,478.6 percent. We also show how a quantum theory concept may be applied to build a considerably more accurate Consumer Price Index in the near future.
The Physics of Wall Street is a captivating history that will revolutionize how we think about our economic future. It is both powerful and accessible.
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