Study of Economical Data and Phenomena Using Concepts of Statistical Physics

• Applicant: Dr. Rudi Schäfer
• Subject Area: Statistical Physics, Nonlinear Dynamics, Complex Systems, Soft and Fluid Matter, Biological Physics
• Term: from 2006 to 2008
• Project identifier: Deutsche Forschungsgemeinschaft (DFG) - Project number 18080191

Many concepts from statistical physics are being transferred to economics ¿ constituting the interdisciplinary field of econophysics. An ever growing wealth of empirical data makes it possible to improve economical modeling. The physics approach to economical questions is the same that guaranteed the successes in the more traditional fields of physics: acquisition of empirical data, critical analysis of theses data and mathematical model-building based on the empirical information. This is exactly the spirit in which I want to pursue the present project.My research project comprises four parts: (1) I plan to explore a correspondence between the commonly used autoregressive models for price dynamics and the motion of particles in a random velocity field in view of market data. This could give rise to a direct economical interpretation of the model parameters. (2) I aim at improving methods for noise-reduction of financial correlation-matrices. To this end, I will take into account time-dependent correlations and non-synchronicity of trading. I expect that the results help to improve portfolio optimization. (3) Two problems of credit risk shall be investigated ¿ the influence of individual credit contracts on the overall risk of a credit portfolio, and the dependence of the loss distribution on the choice of the stochastic processes in the model. This is highly relevant for practical applications as well. (4) In a more general approach to economics, my goal is to construct realistic models for the dynamics of a market economy, using empirical data of macro-economical observables as a basis. I expect various approaches from complex systems to be helpful here, in particular random matrices and the concept of stochastic resonances.

• DFG Programme: Research Fellowships
• International Connection: Italy, Sweden
• Host: Professor Dr. Karl Thomas Guhr