Numerical study of the temperature and porosity effects on the fracture propagation in a 2D network of elastic bonds

This article reports results concerning the fracture of a 2d triangular lattice of atoms linked by springs. The lattice is submitted to controlled strain tests and the influence of both porosity and temperature on failure is investigated. The porosity is found on one hand to decrease the stiffness of the material but on the other hand it increases the deformation sustained prior to failure. Temperature is shown to control the ductility due to the presence of cavities that grow and merge. The rough surfaces resulting from the propagation of the crack exhibit self-affine properties with a roughness exponent $\zeta = 0.59 \pm 0.07$ over a range of length scales which increases with temperature. Large cavities also have rough walls which are found to be fractal with a dimension, $D$, which evolves with the distance from the crack tip. For large distances, $D$ is found to be close to 1.5, and close to 1.0 for cavities just before their coalescence with the main crack

Testing Option Pricing with the Edgeworth Expansion

There is a well developed framework, the Black-Scholes theory, for the pricing of contracts based on the future prices of certain assets, called options. This theory assumes that the probability distribution of the returns of the underlying asset is a gaussian distribution. However, it is observed in the market that this hypothesis is flawed, leading to the introduction of a fudge factor, the so-called volatility smile. Therefore, it would be interesting to explore extensions of the Black-Scholes theory to non-gaussian distributions. In this contribution we provide an explicit formula for the price of an option when the distributions of the returns of the underlying asset is parametrized by an Edgeworth expansion, which allows for the introduction of higher independent moments of the probability distribution, namely skewness and kurtosis. We test our formula with options in the brazilian and american markets, showing that the volatility smile can be reduced. We also check whether our approach leads to more efficient hedging strategies of these instruments.Comment: 9 pages, 3 figure. Contribution to the International Workshop on Trends and Perspectives on Extensive and Non-Extensive Statistical Mechanics, November 19-21, 2003, Angra dos Reis, Brazi

More statistical properties of order books and price impact

We investigate present some new statistical properties of order books. We analyse data from the Nasdaq and investigate (a) the statistics of incoming limit order prices, (b) the shape of the average order book, and (c) the typical life time of a limit order as a function of the distance from the best price. We also determine the `price impact' function using French and British stocks, and find a logarithmic, rather than a power-law, dependence of the price response on the volume. The weak time dependence of the response function shows that the impact is, surprisingly, quasi-permanent, and suggests that trading itself is interpreted by the market as new information.Comment: Proceedings of the Bali conference of Econophysics, to appear in Physica

On the Adam-Gibbs-Wolynes scenario for the viscosity increase in glasses

We reformulate the interpretation of the mean-field glass transition scenario for finite dimensional systems, proposed by Wolynes and collaborators. This allows us to establish clearly a temperature dependent length xi* above which the mean-field glass transition picture has to be modified. We argue in favor of the mosaic state introduced by Wolynes and collaborators, which leads to the Adam-Gibbs relation between the viscosity and configurational entropy of glass forming liquids. Our argument is a mixture of thermodynamics and kinetics, partly inspired by the Random Energy Model: small clusters of particles are thermodynamically frozen in low energy states, whereas large clusters are kinetically frozen by large activation energies. The relevant relaxation time is that of the smallest `liquid' clusters. Some physical consequences are discussed.Comment: 8 page

Economics need a scientific revolution

I argue that the current financial crisis highlights the crucial need of a change of mindset in economics and financial engineering, that should move away from dogmatic axioms and focus more on data, orders of magnitudes, and plausible, albeit non rigorous, arguments.Comment: An edited version of this essay appeared in Natur

The demise of constant price impact functions and single-time step models of speculation

Constant and symmetric price impact functions, most commonly used in agent-based market modelling, are shown to give rise to paradoxical and inconsistent outcomes in the simplest case of arbitrage exploitation when open-hold-close actions are considered. The solution of the paradox lies in the non-constant nature of real-life price impact functions. A simple model that includes explicit position opening, holding, and closing is briefly introduced and its information ecology discussed, shedding new light on the relevance of the Minority Game to the study of financial markets.Comment: 10 pages, 2 figures. Proceedings of APFA5 conferenc

Econophysics: Still fringe after 30 years?

Some personal reflections on the past and future of "econophysics", to appear in Europhysics NewsComment: 5 pages + references, 1 figur