Editorial - Constraints: From physical principles to molecular simulations and beyond |
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Authors: | G Ciccotti " target="_blank">P Echenique |
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Institution: | (1) Department of Bioengineering and Therapeutic Sciences, University of California, Box 0912, San Francisco, CA, USA;(2) Department of Biostatistics, University of California, San Francisco, CA, USA |
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Abstract: | The two articles in this issue of the European Physical Journal Special Topics cover topics in Econophysics and GPU computing in the last years. In the first article 1], the formation of market prices for financial assets is described which can be
understood as superposition of individual actions of market participants, in which they provide cumulative supply and demand.
This concept of macroscopic properties emerging from microscopic interactions among the various subcomponents of the overall
system is also well-known in statistical physics. The distribution of price changes in financial markets is clearly non-Gaussian
leading to distinct features of the price process, such as scaling behavior, non-trivial correlation functions and clustered
volatility. This article focuses on the analysis of financial time series and their correlations. A method is used for quantifying
pattern based correlations of a time series. With this methodology, evidence is found that typical behavioral patterns of
financial market participants manifest over short time scales, i.e., that reactions to given price patterns are not entirely
random, but that similar price patterns also cause similar reactions. Based on the investigation of the complex correlations
in financial time series, the question arises, which properties change when switching from a positive trend to a negative
trend. An empirical quantification by rescaling provides the result that new price extrema coincide with a significant increase
in transaction volume and a significant decrease in the length of corresponding time intervals between transactions. These
findings are independent of the time scale over 9 orders of magnitude, and they exhibit characteristics which one can also
find in other complex systems in nature (and in physical systems in particular). These properties are independent of the markets
analyzed. Trends that exist only for a few seconds show the same characteristics as trends on time scales of several months.
Thus, it is possible to study financial bubbles and their collapses in more detail, because trend switching processes occur
with higher frequency on small time scales. In addition, a Monte Carlo based simulation of financial markets is analyzed and
extended in order to reproduce empirical features and to gain insight into their causes. These causes include both financial
market microstructure and the risk aversion of market participants. |
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