The statistical mechanics of financial markets

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The third edition of The Statistical Mechanics of Financial Markets comes just four years after the first edition, reflecting the growing interest in applying statistical physics to financial markets. The new edition has been significantly expanded to include a more practical focus on banking, influenced by the author's experience as a risk manager at the German Savings Banks’ Association (DSGV). Notably, two new chapters have been added: one on risk management and another on economic and regulatory capital for financial institutions. The risk management chapter covers both fundamental and advanced topics, including coherent risk measures that have yet to gain traction within the statistical physics community. Additionally, the book addresses the limited research by physicists on Basel II, the new capital adequacy framework that will influence risk management standards globally. This framework is expected to create numerous job opportunities in banks, where physicists are particularly well-suited. Consequently, a significant portion of the chapter on capital is dedicated to outlining Basel II, emphasizing its relevance and importance in the field.