The future contains terms (V) that are valid at all times, and terms (U) that are presently unknown. In economics, (V) and (U) correspond to ex ante and ex post, in physics to conservative and not... Show More

The future contains terms (V) that are valid at all times, and terms (U) that are presently unknown. In economics, (V) and (U) correspond to ex ante and ex post, in physics to conservative and not conservative, in calculus, to exact and not exact differential forms or to Riemann and Stokes integrals, and to linear or non-linear equations, in statistics to real and probable terms. Apparently, the authors may represent the (V) and (U) structure in economics and physics by calculus, probability theory, by non-linearity, and chaos theory. The present paper applies Stokes integrals to double entry accounting. The resulting laws replace neoclassical theory and correspond to the first and second laws of thermodynamics. Economics and physics have the same structure, leading to the name econophysics. Production is a two level cycle with cheap production, expensive sales, corresponding to the Carnot cycle of a motor with cold air and hot exhaust. In a running motor, efficiency, the difference between hot and cold, becomes always higher. In an economy the gap between rich and poor always rises.

The authors study the persistence phenomenon in the Japanese stock market by using a novel mapping of the time evolution of the values of shares quoted on the Nikkei Index onto Ising spins. The... Show More

The authors study the persistence phenomenon in the Japanese stock market by using a novel mapping of the time evolution of the values of shares quoted on the Nikkei Index onto Ising spins. The method is applied to historical end of day data from the Japanese financial market. By studying the time dependence of the spins, they find clear evidence for a double-power law decay of the proportion of shares that remain either above or below ‘starting' values chosen at random. The results are consistent with a recent analysis of the data from the London FTSE100 market. The slopes of the power-laws are also in agreement. The authors estimate a long time persistence exponent for the underlying Japanese financial market to be 0.5. Furthermore, they argue that the presence of a double power law in the decay of the persistence probability could be the signature of the presence of both speculative (short-term) and long-term traders in the market.

The work presented here is a paradigm of EconoPhysics, i.e. of research in the area of finance and economics by applying physical models, in this case chaos theory. A specific analysis of a... Show More

The work presented here is a paradigm of EconoPhysics, i.e. of research in the area of finance and economics by applying physical models, in this case chaos theory. A specific analysis of a macroeconomic model proposed by Vosvrda is presented. The Vosvrda model is an idealized macroeconomic model, combining the savings of households, Gross Domestic Product and the foreign capital inflow. It is simulated by three autonomous differential equations. According to this model, there are six parameters, having their values regulating the system behavior (parameters of Vosvdra). Using artificial noisy data for simulating real data and using an inverse modelling procedure, the authors have fitted and tuned the parameters of Vosvdra differential equations to achieve more accurate solutions. The relevant resultant evaluation showed that the system is a chaotic one, even though for the same values proposed by Vosvrda. Finally, this chaotic behavior has provided the capability to expand the time horizon of the solution, thus achieving reliable forecasting for the system.

In this article, the authors investigate the dynamics of two oligopoly games. In the first game, they consider a nonlinear Cournot-type duopoly game with homogeneous goods and same rational... Show More

In this article, the authors investigate the dynamics of two oligopoly games. In the first game, they consider a nonlinear Cournot-type duopoly game with homogeneous goods and same rational expectations. The authors investigate the case, where managers have a variety of attitudes toward relative performance that are indexed by their type. In the second game they consider a Cournot-Bertrand duopoly game with linear demand, quadratic cost function and differentiated goods. In the two games they suppose a linear demand and a quadratic cost function. The games are modeled with a system of two difference equations. Existence and stability of equilibria of the systems are studied. The authors show that the models gives more complex, chaotic and unpredictable trajectories, as a consequence of change in the parameter k of speed of the player's adjustment (in the first game) and in the parameter d of the horizontal product differentiation (in the second game). The authors prove that the variation of the parameter k (resp. d) destabilizes the Nash equilibrium via a period doubling bifurcation (resp. through a Neimark-Sacker bifurcation). The chaotic features are justified numerically via computing Lyapunov numbers and sensitive dependence on initial conditions. In the second game they show that in the case of a quadratic cost there are stable trajectories and a higher or lower degree of product differentiation does not tend to destabilize the economy. They verify these results through numerical simulations. Finally, the authors control the chaotic behavior of the games introducing a new parameter. For some values of this parameter, the Nash equilibrium is stable for every value of the main parameter k or d.

Many econophysics applications have modeled financial systems as if they were pure physical systems devoid of human limitations and errors. On the other hand, traditional financial theory has... Show More

Many econophysics applications have modeled financial systems as if they were pure physical systems devoid of human limitations and errors. On the other hand, traditional financial theory has ignored limits that physics would impose on human interactions, communications, and computational abilities. The entropic yield curve blends the physical and human financial worlds in a new, powerful, and surprisingly simple way. This article uses this information theoretic perspective to provide a new explanation of the dynamics and timing of financial cycles. Additionally, the entropic yield curve offers a new method of forecasting market peaks and troughs.