"The Physics of Wall Street"

 

Abstract: I will discuss how three mathematical physicists contributed to the development of the first mathematical model for pricing options contracts, and how one of them (a former UCI faculty member) used a strategy based on the model to start the first modern quantitative hedge fund.  I will then discuss how work by Benoit Mandelbrot, presented very early in the history of options pricing, revealed a way in which one of the central assumptions underlying this model could fail.  I will conclude by discussing what this example reveals about physicists' contributions to finance.