Financial Market Complexity (Economics & Finance)

Book DescriptionFinancial markets are a fascinating example of 'complexity in action': a real-world complex system whose evolution is dictated by the decisions of crowds of traders who are continually trying to win in a vast global 'game'. This book draws on recent ideas from the highly- topical science of complexity and complex systems, to address the following questions: how do financial markets behave? Why do financial markets behave in the way that they do? What can we do to minimize risk, given thisbehavior? This books shows how these assumptions can give misleading answers to crucially important practical problems such as minimizing financial risk, coping with extreme events such as crashes or drawdowns, and pricing derivatives. After discussing the background to the concept of complexity and the structure of financial markets in Chapter 1, Chapter 2 examines the assumptions upon which standard finance theory is built. Reality sets in which Chapter 3, where data from two...