Econophysics and Capital Asset Pricing: Splitting the Atom of Systematic Risk

ISBN-13: 9783319634647 / Angielski / Twarda / 2017 / 287 str.

James Ming Chen

Opis

This book rehabilitates beta as a definition of systemic risk by using particle physics to evaluate discrete components of financial risk.

Recenzje

"The book is more suitable for market practitioners than for financial mathematicians since the mathematical description is relatively well known. It can, however, shed new light on the well-known and widely used CAPM and maybe motivate some practitioners to adopt more accurate models of capital asset pricing. Therefore I recommend this book for readers who have not encountered econophysics yet and who are not familiar with advanced mathematical models of asset pricing." (Jan Korbel, Mathematical Reviews, October, 2019)

Spis treści

Part I- The First Generation: Addressing Markets Up and Down

1. Baryonic Beta Dynamics: The Econophysics of Systematic Risk 

2. Double- and Single-Sided Risk Measures

Part II- The Second Generation: The Strange Charm of Volatility and Correlation

3. Relative Volatility Versus Correlation Tightening

4. Asymmetrical Volatility and Spillover Effects

5. The Low-Volatility Anomaly

6. Correlation Tightening

Part III- The Third Generation: Truth and Beauty in Cash-Flow and Discount-Rate Effects

7. The Intertemporal Capital Asset Pricing Model

8. The Equity Premium Puzzle

9. Beta’s Cash-Flow and Discount-Rate Components

10. Risk and Uncertainty

11. Short-Term Price Continuation Anomalies

12. Systematic Risk in the Macrocosmos

13. The Baryonic Ladder: The Firm, the Market, and the Economy

O autorze

James Ming Chen holds the Justin Smith Morrill Chair in Law at Michigan State University, USA. His books, Disaster Law and Policy, Postmodern Portfolio Theory, and Finance and the Behavioral Prospect cover a broad range of issues concerning extreme events and risk management, from natural to financial disasters. He is of counsel to the Technology Law Group of Washington, DC; a public member of the Administrative Conference of the United States; and an elected member of the American Law Institute. A magna cum laude graduate of Harvard Law School and a former editor of the Harvard Law Review, Chen also served as a clerk to Justice Clarence Thomas of the Supreme Court of the United States.

Blurb

This book rehabilitates beta as a definition of systemic risk by using particle physics to evaluate discrete components of financial risk. Much of the frustration with beta stems from the failure to disaggregate its discrete components; conventional beta is often treated as if it were "atomic" in the original Greek sense: uncut and indivisible. By analogy to the Standard Model of particle physics theory's three generations of matter and the three-way interaction of quarks, Chen divides beta as the fundamental unit of systemic financial risk into three matching pairs of "baryonic" components. The resulting econophysics of beta explains no fewer than three of the most significant anomalies and puzzles in mathematical finance. Moreover, the model's three-way analysis of systemic risk connects the mechanics of mathematical finance with phenomena usually attributed to behavioral influences on capital markets. Adding consideration of volatility and correlation, and of the distinct cash flow and discount rate components of systematic risk, harmonizes mathematical finance with labor markets, human capital, and macroeconomics.