Short Books £12.99
Paperback review: The Physics of Finance, By James Owen Weatherall
Saturday 23 March 2013
For the last 100 years, a succession of scientists, from the French mathematician Louis Bachelier, to Benoit Mandelbrot, discoverer of fractals, have applied mathematical models developed in physics to financial markets.
These models have been used to predict economic rises and falls with considerable success, and the occasional spectacular failure, such as the meltdown of 2008. Weatherall argues that the correct response to such failures is not to give up on models but to continually refine them. He explains complex mathematical theories in a wonderfully lucid, readable style. The terminology has a curious poetry of its own: random walk, volatility smile, fat-tailed distributions, black-box models. However, the book didn't convince me that speculating in money markets is actually of any use to anyone, except those it enriches.
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