1.introduction
1.1 motivation
1.2 why physicists? why models of physics?
1.3 physics and finance - historical
1.4 aims of this book
2.basic information on capital markets
2.1 risk
2.2 assets
2.3 three important derivatives
2.4 derivative positions
2.5 market actors
2.6 price formation at organized exchanges
3.random walks in finance and physics
3.1 important questions
3.2 bachelier's "theorie de la speculation"
3.3 einstein's theory of brownian motion
3.4 experimental situation
4.the black-scholes theory of option prices
4.1 important questions
4.2 assumptions and notation
4.3 prices for derivatives
4.4 modeling fluctuations of financial assets
4.5 option pricing
5.scaling in financial data and in physics
5.1 important questions
5.2 stationarity of financial markets
5.3 geometric brownian motion
5.4 pareto laws and levy flights
5.5 scaling, levy distributions,and levy flights in nature
5.6 new developments: non-stable scaling, temporal and interasset correlations in financial markets
6.Turbulence and Foreign Exchange Markets
6.1 Important Questions
6.2 Turbulent Flows
6.2.1 Phenomenology
6.2.2 Statistical Description of Turbulence
6.2.3 Relation to Non.extensive Statistical Mechanics
6.3 F0reign Exchange Markets
6.3.1 Why Foreign Exchange Markets?
6.3.2 Empirical Resu：Its
6.3.3 Stochastic Cascade Models
6.3.4 The Multifractal Interpretation
7.Derivative Pricing Beyond Black-Scholes
7.1 Important Questions
7.2 An Integral namework for Derivative Pricing
7.3 Application to Forward Contracts
7.4 Option Pricing（European Calls）
7.5 Monte Carlo Simulations
7.6 Option Pricing in a Tsallis world
7.7 Path Integrals：Integrating the Fat Tails into Option Pricing
7.8 Path Integrals：Integrating Path Dependence into Option Pricing
8.Microscoplc Market MOdeIs
8.1 Important Questions
8.2 Are Markets Eflicient?
8.3 Computer Simulation of Market Models
8.3.1 Two Classical Examples
8.3.2 Recent Models
8.4 The Minority Game
8.4.1 The Basic Minority Game
8.4.2 A Phase Transition in the Minority Game
8.4.3 Relation to Financial Markets
8.4.4 Spin Glasses and an Exact Solution
8.4.5 Extensions ofthe Minority Game
9.Theory of Stock Exchange Crashes
9.1 Important Questions
9.2 Examples
9.3 Earthquakes and MateriaI Failure
9.4 Stock Exchange Crashes
9.5 What Cause8 Crashes?
9.6 Are Crashes Rational?
9.7 What Happens After a Crash?.，
9.8 A Richter Scale for Financial Markets
10.R.isk Management
10.1 Important Questions
10.2 What is Risk?
10.3 Measures of Risk
10.3.1 Volatility
10.3.2 Generalizations of Volatility mad Moments
10.3.3 Statistics of Extremal Events
10.3.4 V_alue at Risk
10.3.5 Coherent Measures of Risk
10.3.6 Expected Shortfall
10.4 Types of Risk
10.4.1 Market Risk
10.4.2 Credit Risk
10.4.3 0perational msk
10.4.4 Liquiditv msk
10.5 msk Management
10.5.1 Risk Management Requires a Strategy
10.5.2 Limit Systems
10.5.3 Hedging
10.5.4 Portfolio Insurance
10.5.5 Diversification
10.5.6 Strategic msk Management
11.Economic and Regulatory Capital for Financial Institutions
11.1 Important Questions
11.2 Economic Capital
11.2.1 What Determines Economic Capital?
11.2.2 How Calculate Economic Capital?
11.2.3 How Allocate Economic Capital?
11.2.4 Economic Capital a Management Tool
11.3 The Regulatory Framework
11.3.1 Why Banking Regulation?
11.3.2 Risk-Based Capital Requirements
11.3.3 Basel I：Regulation of Credit Risk
11.3.4 Internal Models
11.3.5 Basel II：The New International Capital Adequacy Framework
11.3.6 0utlook：Basel IIl and Babel IV
Appendix
Notes and Raferences
Index
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