Physics and astronomy

Physics Methods in Finance

Module code: F3062
Level 6
15 credits in spring teaching
Teaching method: Lecture, Workshop
Assessment modes: Coursework, Unseen examination

The module will cover topics including:

  • Efficient market hypothesis 
  • Random walk 
  • Levy stochastic processes and limit theorems
  • Scales in financial data
  • Stationarity and time correlation
  • Time correlation in financial time series
  • Stochastic models of price dynamics
  • Scaling and its breakdown
  • ARCH and GARCH processes
  • Financial markets and turbulence
  • Correlation and anti-correlation between stocks
  • Taxonomy of a stock portfolio
  • Options in idealised markets (to include Black & Scholes formula)
  • Options in real markets

Pre-requisite

Level 4:
(F3201) Mathematical Methods for Physics 1 [T1]
(F3202) Mathematical Methods for Physics 2 [T2]

Level 5:
F3205 Mathematical Methods for Physics 3 [T1]

Module learning outcomes

  • Have a basic understanding of the terminology used in econophysics
  • Understand how physics tools can be applied to financial markets
  • Apply the Black & Scholes formula to simple problems
  • Understand the concept of random walk, probability theory, stochastic processes and Ito calculus