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With the invention of fractal geometry,
mathematical superstar Benoit Mandelbrot forever changed
the way we understand the mysteries of nature and influenced
a host of modern fields, from chaos theory to computer animation.
Now, together with science journalist and former Wall
Street Journal editor Richard L. Hudson, Mandelbrot
turns a fractal eye to the behavior of financial markets
and overturns the "random walk" theory that is
the underpinning of all contemporary financial analysis.
Markets, we learn, are far riskier than we have wanted to
believe.
The ability to simplify the complex has
made Mandelbrot one of the century's most influential mathematicians.
With his fractal models, the (mis)behavior of the world's
markets -- from the gyrations of IBM's stock price and the
Dow, to cotton trading, and the dollar-Euro exchange rate
-- can be understood in more accurate terms than the tired
theories of yesteryear.
For the past forty years, Mandelbrot has
been studying the underlying mathematics of finance -- and
this book relates his personal voyage of discovery. From
his father's wartime garment business, his research on the
American cotton market, and his studies of the Nile River's
floods, mandelbrot draws many unusual insights -- the insights
of a maverick scientist. He has proven that many of the
fundamental assumptions of financial theory are wrong, and
in the past decade a growing number of financiers and economists
have started listening. The models he has built faithfully
replicate real-world price series, illustrate the manner
in which market turbulence clusters, and show that no investment
horizon is inherently better than another -- volatility
"scales" the same over hours or decades. Financial
markets do not fluctuate according to a "random walk"
mode; they operate with their own sense of "market
time" that does not correspond to hours and minutes
as the wall clock counts them.
The (Mis)Behavior of Markets is a
revolutionary reevaluation of the standard tools and models
of modern financial theory. Mandelbrot's fresh insights
explode the false assumptions that have caused millions
of investors, traders, and managers to underestimate the
real risk of the market. His genius ensures that investors
will never see the market -- or their portfolios -- the
same way again.
Benoit B. Mandelbrot is Sterling Professor
of Mathematical Sciences at Yale University and a Fellow
Emeritus at IBM's Thomas J. Watson Laboratory. He is the
inventor of fractal geometry, whose most famous example,
the Mandelbrot Set, has been replicated on millions of posters,
T-shirts, and albums. A leading figure in James Gleick's
Chaos, he has received numerous awards in the United
States and abroad, such as the Japan Prize in Science and
Technology, and and the Wolf Prize in Physics, which praised
him for having "changed our view of nature." His
books include the classic The Fractal Geometry of Nature.
This is his first book for lay readers on finance, a
subject he has studied since the 1960s. He lives in Scarsdale,
New York.
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. He is a 1978 graduate
of Harvard University and a 1991 Knight Fellow of MIT. He
lives in Brussels, Belgium.
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