Financial Markets and second-order Phase Transitions
At a glance
- Project leader : Dr. Christoph Schmidhuber
- Project budget : CHF 100'000
- Project status : completed
- Funding partner : SNSF (Spark / Projekt Nr. 190659)
- Contact person : Christoph Schmidhuber
Description
In this project, we will examine an analogy between financial
markets and second-order phase transitions in physical systems. The
empirical basis are observations that the author has made in the
past decade. They indicate that financial markets can be modelled
by scalar quantum mechanical variables (fields) in a ?^4
potential.
A scalar field theory with ?^4 potential also describes the
second-order phase transition of the Ising model, and of other
physical systems that lie in the same universality class, such as
water and steam. An intuitive explanation for this analogy is that
buy- and sell-orders may be viewed as Ising-like spins on a random
lattice which represents the social network of traders. In this
project, we further work out the previously made observations of
the author, publish them, and establish the conjectured analogy
with second-order phase transitions. If we succeed in modelling
markets in analogy with second-order phase transitions, this would
open up a new chapter in the theory of financial markets, and
introduce completely new methods from statistical physics into
Finance.