why does physics math apply so well in finance and biology?

On 27 May 2005 10:42:42 -0700, double d wrote:


You're either a junior high instructor, or if you are
what you say you are, you need to sell your PhD for a
lollipop, quit your job, and start selling popcorn in
theaters.

> After my PhD in mathematical physics 15 years ago from Harvard, I

What math theories apply so well to Wall Street? The only one I can think of
is Chaos theory, and that theory shows more about what you cannot predict
than what you can predict.

By the way... are you some kind of ****ing idiot troll? Just wondering...

double d wrote:

A lot of physicists are working there.


Not really. Dirac's QM was basically a mathematics *derived* to
accurately reflect the observed behavior of electrons.


No. Individual human beings are notoriously difficult to predict, but
en masse they are *statistically* predictable. Like Dirac's electrons,
we have a historical database we can analyze to determine how they have
behaved in the past. We simply assume that they will act in future in
the same manner. Usually the assumption is good.

For example, a statistical analysis of market panics shows that there
is usually a lead time of several days wherein the market shows a
statistically high volatility index (a semi-empirical measure of my
own devising) that immediately *precedes* a crash. The volatility
apparently makes investors nervous, and when sustained too long they
panic.

Tom Davidson
Richmond, VA

In article <1117215762.128259.162520@z14g2000cwz.googlegroups .com>,
double d <[Only registered users see links. ]> wrote:

Mathematical theories apply because there's an underlying order to the
system, and the degree they apply to depends on how well you model the
system. You know that human traders want to make money, you and they both
know the rules of the securities markets. You don't have to predict what
the individual trader will do, just the dollar-weighted average trader.


Dang, that's a nice job offer. I'd send in my letter, except I don't want
to spend the next ten years in New York. Nobody seems to have those sorts
of positions in Minneapolis.


--
"I'm giving you the chance to look fate in those pretty eyes of hers
and say, 'Step off, bitch. This is my party and you're not invited.'"
-- Chris Shugart, _Testosterone Magazine_

> No. Individual human beings are notoriously difficult to predict, but

About as predictable as the weather. Short term, often... long term, never.
Society usually behaves today much like they did yesterday. So over a short
term, there can often be some success in prediction. But individuals can
make sudden and large scale impacts on large populations that can not be
predicted. Examples are Christ, Mohamad, Marx, Hitler, Mao, gorbachev,
Walesa, Copernicus, Newton, Einstein, Darwin , Berners-Lee, Torvalds and
Typhoid Mary. Nonlinear dynamics big time.

> Mathematical theories apply because there's an underlying order to the

Underlying order is not enough. There exit many deterministic dynamical
systems, even rather simple ones, that are very chaotic. Knowing the rules
of the securities markets does not help much. You don't have to predict what
the individual trader will do... you don't even have to predict just the
dollar-weighted average trader. All you have to do is scam the gullible
stock market playing public into believing that you have the ability to
predict the market. These charlatans have been at it for decades, and the
stupid public never learns that throwing darts at a board has the same
predictive power as the stock market pundits.

In article <1117215762.128259.162520@z14g2000cwz.googlegroups .com>,
double d <[Only registered users see links. ]> wrote:

If something is modeled mathematically, and the model
is sufficiently close to being correct, the predictions
from applying mathematics to the model will likewise
come close to being correct.

--
This address is for information only. I do not claim that these views
are those of the Statistics Department or of Purdue University.
Herman Rubin, Department of Statistics, Purdue University
[Only registered users see links. ] Phone: (765)494-6054 FAX: (765)494-0558

To proffer some famous examples, math theories has been successfully
applied on Wall Street most famously to these following areas:

Black Scholes options prices (resulting in Nobel Prize in Economics)
[Only registered users see links. ]

Equity Valuation and Appraisal Analysis (price-earnings ratios):
[Only registered users see links. ]

Bankruptcy prediction:
[Only registered users see links. ]

Credit risk analysis:
[Only registered users see links. ]

FYI, the "Black Scholes" equation is similar to the Schrodinger
Equation in Quantum Mechanics.
MD

You're talking in meaningless generalities. Need I repeat the specific
success examples in my
earlier message: Black Scholes options pricing, equity valuation,
credit risk analysis, bankruptcy prediction. See above.
MD

> To proffer some famous examples, math theories has been successfully

All interesting mathematical theory, but how do you measure how successfully
these theories have been in the real world of predicting Wall Street? You
were talking about Wall Street, right? I would not bet my money on it. You
make an analogy to Schrodinger's equation. Well, Schrodinger's equation is a
wave equation and it does not tell you anything about where the electron
actually will be. It is of theoretical use, and helps to verify QM, but it's
analytical solutions are hopeless at being used in a practical problem where
you go much beyond the complexity of a hydrogen atom. One proton and one
electron, and then you crap out beyond that.