The (Mis)behavior of Markets

About this book

Benoit B. Mandelbrot one of the centurys most influential mathematicians is world-famous for making mathematical sense of a fact everybody knows but that geometers from Euclid on down had never assimilated: Clouds are not round mountains are not cones coastlines are not smooth. To these classic lines we can now add another example: Markets are not the safe bet your broker may claim. In his first book for a general audience Mandelbrot with co-author Richard L. Hudson shows how the dominant way of thinking about the behavior of markets-a set of mathematical assumptions a century old and still learned by every MBA and financier in the world-simply does not work. As he did for the physical world in his classic The Fractal Geometry of Nature Mandelbrot here uses fractal geometry to propose a new more accurate way of describing market behavior. The complex gyrations of IBMs stock price and the dollar-euro exchange rate can now be reduced to straightforward formulae that yield a far better model of how risky they are. With his fractal tools Mandelbrot has gotten to the bottom of how financial markets really work and in doing so he describes the volatile dangerous (and strangely beautiful) properties that financial experts have never before accounted for. The result is no less than the foundation for a new science of finance.