Special issue on Econophysics

What is “Econophysics"? Who is an “econophysicist"? The coining of a new scientific term, composed of the names of two fields, traditionally considered to be far from each other, brings new dreams to investigators, by mere virtue of a new ensemble of viewpoints. The term “econophysics" has revealed a kinship between the fields of physics and economics, which was not obvious before. The first officially recognized conference by a professional society on “econophysics", Applications of Physics to Financial Analysis (APFA, soon to become APFA1) was held in Dublin in 1999. Since then APFA and its companion meetings have begun to reveal new branches of research from the established pathways explored in applied statistical physics and thus economics (in particular finance). The analysis of fluctuations in financial data by new or modified techniques has led to new insights. Such analysis involves physicists looking for correlation between entities in financial matter in much the same way as they have done for physical systems in their laboratories. This approach leads to useful new methods and results in different outputs. The studies of phase transitions and non-equilibrium effects, including self-organisation have progressed the understanding of many physical phenomena. So why not use the same methodology in a field which is thought to be governed by sociology, psychology, politics and other so called softer science? The observations of deterministic chaos, scaling, in financial time series (tools such as recurrence, plots exploiting symmetries in pricing theory or the use of the wavelet or path integral or renormalisation group method) will still give some work ahead even though all these tools have a basic origin or are rather standard tools nowadays. Characterization of data and theory talks broke new ground in pursuit of e.g. useful strategies or political consequences. One continues to ask, how is it that fluctuations or other agents in a system conspire to give surprising anomalous properties? By broadening discussion to the category of econophysics topics, as covered in APFA2 (held in Liège, Belgium on July 13-15, 2000), we have gained new paradigms to study this question. Several reports to APFA2 are not included in the following to avoid duplicating reports in this proceedings. Very warm and profound acknowledgments are in order here. APFA2 was made possible mainly by the European Physical Society (EPS), the Fond National de la Recherche Scientifique (FNRS, Brussels), the Fonds voor Wetenschappelijk Onderzoek-Vlaanderen (FWO), and the University of Liège.     

Special issue on Econophysics

The area of research described as 'econophysics" is renewing a kinship between physicists and economists and financial practitioners, that has been lost since the 19th century when scientists such as Pascal and Halley made groundbreaking advances in the area. Now, new meetings are revealing new research opportunities outside the established pathways traditionally explored within economics and finance. In December 2001, around 100 researchers from across the world attended the EPS meeting 'Applications of Physics to Financial Analysis' (APFA3). This was held in the Museum of London Conference Centre which was chosen for its proximity to the City of London and its trading centres. The meeting was especially useful in bringing together roughly equal numbers of physicists, mathematicians and financial practitioners. Taking part in the conference we had the impression that, whilst the relation between physics and applied finance may still be at an early stage, it is evolving very quickly. As in nature, a sign of evolution is the emergence of different and specialised branches, each with their own specific character. Papers covered a range of topics, including: market modelling, risk management, agent-based modelling, hedging in incomplete markets, benchmarking, performance measurement, foreign exchange markets, time series analysis and prediction, efficient market hypothesis, equilibrium and non-equilibrium markets, economic and financial networks, the valuation of derivatives, growth and bankruptcy. The meeting was sponsored by the European Physical Society and the UK Institute of Physics. The invited speakers were J.Ph. Bouchaud, J.F. Muzy, K. Sneppen, G. Iori and S. Solomon. Articles outlining some of the more interesting advances in this field have been selected by the Guest Editors, from amongst the submitted articles, and after having been refereed, they are presented here in this edition of EPJ B. APFA3 closed on a positive note. There was a feeling that links between academia and industry are healthy and that these new interactions between Physics and Finance are producing valuable scientific and economic results.