Statistical Mechanics: Entropy, Order Parameters, and Complexity,
now available at
Oxford University Press
(USA,
Europe).
Stock prices are well approximated by random walks. This exercise uses
the theory of random walks and the values of the Standard and Poors 500
index over several years to illustrate the concept of volatility
and the importance of diversification. It also touches upon
ways in which stock price variations deviate from random walks, discussing
heavy tails.
Last modified: August 24, 2006
Statistical Mechanics: Entropy, Order Parameters, and Complexity,
now available at
Oxford University Press
(USA,
Europe).