Econophysics And Capital Asset Pricing: Splitting The Atom Of Systematic Risk (quantitative Perspectives On Behavioral Economics And Finance)
by James Ming Chen /
2017 / English / PDF
3.4 MB Download
This book rehabilitates beta as a definition of systemic risk by
using particle physics to evaluate discrete components of
financial risk. Much of the frustration with beta stems from the
failure to disaggregate its discrete components; conventional
beta is often treated as if it were "atomic" in the original
Greek sense: uncut and indivisible. By analogy to the Standard
Model of particle physics theory's three generations of matter
and the three-way interaction of quarks, Chen divides beta as the
fundamental unit of systemic financial risk into three matching
pairs of "baryonic" components. The resulting econophysics of
beta explains no fewer than three of the most significant
anomalies and puzzles in mathematical finance. Moreover, the
model's three-way analysis of systemic risk connects the
mechanics of mathematical finance with phenomena usually
attributed to behavioral influences on capital markets. Adding
consideration of volatility and correlation, and of the distinct
cash flow and discount rate components of systematic risk,
harmonizes mathematical finance with labor markets, human
capital, and macroeconomics.
This book rehabilitates beta as a definition of systemic risk by
using particle physics to evaluate discrete components of
financial risk. Much of the frustration with beta stems from the
failure to disaggregate its discrete components; conventional
beta is often treated as if it were "atomic" in the original
Greek sense: uncut and indivisible. By analogy to the Standard
Model of particle physics theory's three generations of matter
and the three-way interaction of quarks, Chen divides beta as the
fundamental unit of systemic financial risk into three matching
pairs of "baryonic" components. The resulting econophysics of
beta explains no fewer than three of the most significant
anomalies and puzzles in mathematical finance. Moreover, the
model's three-way analysis of systemic risk connects the
mechanics of mathematical finance with phenomena usually
attributed to behavioral influences on capital markets. Adding
consideration of volatility and correlation, and of the distinct
cash flow and discount rate components of systematic risk,
harmonizes mathematical finance with labor markets, human
capital, and macroeconomics.
