Applications of physics to finance and economics: returns, trading activity and income

This dissertation reports work where physics methods are applied to financial and economical problems. The first part studies stock market data (chapter 1 to 5). The second part is devoted to personal income in the USA (chapter 6). We first study the probability distribution of stock returns at mesoscopic time lags (return horizons) ranging from about an hour to about a month. For mesoscopic times the bulk of the distribution (more than 99% of the probability) follows an exponential law. At longer times, the exponential law continuously evolves into Gaussian distribution. After characterizing the stock returns at mesoscopic time lags, we study the subordination hypothesis. The integrated volatility V_t constructed from the number of trades process can be used as a subordinator for a Brownian motion. This subordination is able to describe approximatly 85% of the stock returns for time lags that start at 1 hour but are shorter than one day. Finally, we show that the CIR process describes well enough the empirical V_t process, such that the corresponding Heston model is able to describe the log-returns x_t process, with approximately the maximum quality that the subordination allows. Finally, we study the time evolution of the personal income distribution. We find that the personal income distribution in the USA has a well-defined two-income-class structure. The majority of population (97-99%) belongs to the lower income class characterized by the exponential Boltzmann-Gibb(``thermal'') distribution, whereas the higher income class (1-3% of population) has a Pareto power-law (``superthermal'') distribution. We show that the ``thermal'' part is stationary in time.Comment: 24 pages and 45 figures. PhD thesis presented to the committee members on May 10th 2005. This thesis is based on 3 published papers with one chapter (chapter 5) with new unpublished result

The auxiliary region method: A hybrid method for coupling PDE- and Brownian-based dynamics for reaction-diffusion systems

Reaction-diffusion systems are used to represent many biological and physical phenomena. They model the random motion of particles (diffusion) and interactions between them (reactions). Such systems can be modelled at multiple scales with varying degrees of accuracy and computational efficiency. When representing genuinely multiscale phenomena, fine-scale models can be prohibitively expensive, whereas coarser models, although cheaper, often lack sufficient detail to accurately represent the phenomenon at hand. Spatial hybrid methods couple two or more of these representations in order to improve efficiency without compromising accuracy. In this paper, we present a novel spatial hybrid method, which we call the auxiliary region method (ARM), which couples PDE and Brownian-based representations of reaction-diffusion systems. Numerical PDE solutions on one side of an interface are coupled to Brownian-based dynamics on the other side using compartment-based "auxiliary regions". We demonstrate that the hybrid method is able to simulate reaction-diffusion dynamics for a number of different test problems with high accuracy. Further, we undertake error analysis on the ARM which demonstrates that it is robust to changes in the free parameters in the model, where previous coupling algorithms are not. In particular, we envisage that the method will be applicable for a wide range of spatial multi-scales problems including, filopodial dynamics, intracellular signalling, embryogenesis and travelling wave phenomena.Comment: 29 pages, 14 figures, 2 table

Analytic structure of the Landau gauge gluon propagator

The analytic structure of the non-perturbative gluon propagator contains information on the absence of gluons from the physical spectrum of the theory. We study this structure from numerical solutions in the complex momentum plane of the gluon and ghost Dyson-Schwinger equations in Landau gauge Yang-Mills theory. The resulting ghost and gluon propagators are analytic apart from a distinct cut structure on the real, timelike momentum axis. The propagator violates the Osterwalder-Schrader positivity condition, confirming the absence of gluons from the asymptotic spectrum of the theory.Comment: 5 pages, 7 figure

Classification of finite groups generated by reflections and rotations

We survey the existing parts of a classification of finite groups generated by orthogonal transformations in a finite-dimensional Euclidean space whose fixed point subspace has codimension one or two and extend it to a complete classification. These groups naturally arise in the study of the quotient of a Euclidean space by a finite orthogonal group and hence in the theory of orbifolds.Comment: 38 pages, accepted by Transformation Group