Moshe Levy, Haim Levy, and Sorin Solomon

The Hebrew University of Jerusalem, Israel

"Levy, Solomon and Levy's Microscopic Simulation of Financial Markets points us towards the future of financial economics. If we restrict ourselves to models which can be solved analytically, we will be modeling for our mutual entertainment, not to maximize explanatory or predictive power."

—Harry M. Markowitz, President, Harry Markowitz Co., and Nobel Laureate in Economics

"Many theoretical physicists now try to apply their research techniques to problems in finance; this is a book to help them in such computer simulations. In contrast to earlier "econophysics" books, Levy et al. emphasize the modeling of individual traders, and they give credit to economists who used such methods already before."

—Dietrich Stauffer, Cologne University, Cologne, Germany

"This book contains the first fully comprehensive treatment of Microscopic Simulation in Finance. The authors make a compelling case that this technique, originally used in physics to solve otherwise intractable problems, is destined to become a standard tool in finance. It is particularly well-suited for highly complex financial problems in behavioral finance where standard methods are inadequate."

—Richard Roll, Allstate Professor of Insurance and Finance at the Anderson School of Business, UCLA

The stock market, for a physicist, is the world’s largest, most efficient, and well maintained laboratory in the world, with dense and precise measurements easily accessible. In the financial markets, both the microscopic operations and the macroscopic trends are fully documented, as opposed to studies of elementary particles, where the microscopic interactions must be inferred from the emerging dynamics. In cosmology, emerging macroscopic features are still unknown at the largest scales. In the old dream of Boltzmann and Maxwell of following in detail the emergence of macroscopic irreversibility, generic universal laws and collective robust features from microscopic simple elementary interactions can now be fully realized with the help of this wonderful immense thermodynamic machine where the "microscopic Maxwell demons" are human size and the (Adam Smith's) "invisible hand" is more transparent then ever.

Microscopic Simulation of Financial Markets seeks to make a contribution to the emergence of a coherent language and set of concepts in the new community of "econophysics." It has been written so that it can be followed by physicists as well as economists unversed in the language of “econophysics.” The authors are part of a growing movement which follows the birth of macroscopic global market trends based on the microscopic individual traders' operations. Using statistical dynamics methods, the authors attempt to conceptually and practically resolve the paradoxes implied by the efficient market hypothesis, the representative investor, the market portfolio, and the old quarrels between "fundamentalists" and "chartists."