Review The Misbehavior of Markets: A Fractal View of Financial Turbulence
by BENOIT MANDELBROT and RICHARD HUDSON
Benoit Mandelbrot, a math genius who invented fractal geometry, has been engrossed in the study of space and natural patterns. He has brought this curiosity in the financial markets that led him to discover a fractal view of financial turbulence. The (Mis) Behavior of Markets is Mandelbrot’s discovery and the product of his collaboration with Richard Hudson, a science journalist, and former Wall Street editor.
This book will walk traders through the real process of how a financial market work by injecting the fractal perspective in finance and will leave a subject for further studies of finance revolution by studying more about fractals.
About the Authors
Benoit Mandelbrot is teaching Mathematical Sciences at Yale University and invented fractal geometry. He is a recipient of multiple awards, the Wolf Prize in Physics. Richard Hudson is a journalist and served at Wall Street Journal as a managing editor. He was a journal reporter and editor for twenty-five years.
Richard L. Hudson was the managing editor of the Wall Street Journal’s European edition for six years, and a Journal reporter and editor for twenty-five years. He is a 1978 graduate of Harvard University and a 1991 Knight Fellow of MIT. He lives in Brussels, Belgium.
Table of Contents
This book contains:
PART ONE – The Old Way
CHAPTER I – Risk, Ruin, and Reward
“Modern” financial theory is founded on a few, shaky myths that lead us to underestimate the real risk of financial markets.
CHAPTER II – By the Toss of a Coin or the Flight of an Arrow?
How the operations of mere chance can be used to study a financial market.
CHAPTER III – Bachelier and His Legacy
The study of financial theory began a century ago with a brilliant but undervalued French mathematician, Louis Bachelier.
CHAPTER IV – The House of Modern Finance
How the edifice of modern financial theory – valuing assets, building portfolios and assessing risk – was erected on Bachelier’s work.
CHAPTER V – The Case Against the Modern
Theory of Finance
Pictorial Essay: Images of the Abnormal
PART TWO – The New Way
CHAPTER VI – Turbulent Markets: A Preview
Financial markets are turbulent – like the wind or the flood. An introduction to the fractal view of finance.
CHAPTER VII – Studies in Roughness: A Fractal Primer
Pictorial Essay: A Fractal Gallery
CHAPTER VIII – The Mystery of Cotton
Clue No. 1: A Power Law Out of the Blue
Clue No. 2: Early Power Laws in Economics
Clue No. 3: The Laws of Exceptional Chance
CHAPTER IX – Long Memory, from the Nile to the Marketplace
The second clue to fractal finance came from a lifelong study of the Nile River by an English hydrologist, H.E. Hurst
CHAPTER X – Noah, Joseph, and Market Bubbles
The two critical features of financial markets are wild price swings and long-term dependence – the Noah Effect and the Joseph Effect.
CHAPTER XI – The Multifractal Nature of Trading Time
PART THREE – The Way Ahead
CHAPTER XII – Ten Heresies of Finance
How do financial markets really work? A list of key insights provided by the fractal view of finance.
CHAPTER XIII – In the Lab
So how can the study of fractals changes finance? A program for future research.