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Physics in finance

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Abstract:

These days it is not unusual to find people with a PhD in physics on the trading floor of a bank, but seven years ago such folk were very rare. This article is about what happens when a physicist works on the trading floor; not only the financial mathematics and research but also the people and the situations that he or she encounters. It is partly biographical, beginning with the description of the research at the Clarendon Laboratory that the author was involved in, and describing how she ended up working for a bank. Various aspects of the finance research that she now pursues are explained, starting with simple foreign exchange rate calculations, going on to discuss some subtle aspects of the Black–Scholes model used in the valuation of financial instruments, and concluding with study on the fair price of options which illustrates how important it is to apply the research methods learnt in physics to the world of finance.

Document Type: Research Article

DOI: http://dx.doi.org/10.1080/00107510110065724

Publication date: July 1, 2001

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