physics of financial markets

{{Short description|Discipline that studies financial markets as physical systems}}

Physics of financial markets is a non-orthodox economics discipline that studies financial markets as physical systems. It seeks to understand the nature of financial processes and phenomena by employing the scientific method and avoiding beliefs, unverifiable assumptions and immeasurable notions, not uncommon to economic disciplines.

Physics of financial markets addresses issues such as theory of price formation, price dynamics,{{cite journal | last=Nastasiuk | first=Vadim A. | title=Emergent quantum mechanics of finances | journal=Physica A: Statistical Mechanics and Its Applications | publisher=Elsevier BV | volume=403 | year=2014 | issn=0378-4371 | doi=10.1016/j.physa.2014.02.037 | pages=148–154|arxiv=1312.3247| bibcode=2014PhyA..403..148N | s2cid=122848354 }}{{cite journal | last=Nastasiuk | first=V.A. | title=Fisher information and quantum potential well model for finance | journal=Physics Letters A | publisher=Elsevier BV | volume=379 | issue=36 | year=2015 | issn=0375-9601 | doi=10.1016/j.physleta.2015.06.052 | pages=1998–2000|arxiv=1504.03822| bibcode=2015PhLA..379.1998N }} market ergodicity,{{cite journal | last1=Peters | first1=O. | last2=Klein | first2=W. | title=Ergodicity Breaking in Geometric Brownian Motion | journal=Physical Review Letters | volume=110 | issue=10 | date=2013-03-08 | issn=0031-9007 | doi=10.1103/physrevlett.110.100603 | pmid=23521245 | page=100603|arxiv=1209.4517| bibcode=2013PhRvL.110j0603P | s2cid=27561974 }}{{cite journal | last=Peters | first=Ole | title=Optimal leverage from non-ergodicity | journal=Quantitative Finance | publisher=Informa UK Limited | volume=11 | issue=11 | year=2011 | issn=1469-7688 | doi=10.1080/14697688.2010.513338 | pages=1593–1602|arxiv=0902.2965| s2cid=18047037 }}{{cite journal | last1=Lillo | first1=Fabrizio | last2=Mantegna | first2=Rosario N. | title=Variety and volatility in financial markets | journal=Physical Review E | publisher=American Physical Society (APS) | volume=62 | issue=5 | date=2000-11-01 | issn=1063-651X | doi=10.1103/physreve.62.6126 | pmid=11101943 | pages=6126–6134|arxiv=cond-mat/0006065| bibcode=2000PhRvE..62.6126L | s2cid=29760898 }} collective phenomena, market self-action, and market instabilities.

Physics of financial markets should not be confused with mathematical finance, which are only concerned with descriptive mathematical modeling of financial instruments without seeking to understand nature of underlying processes.