Undergraduate Program
Junior Matters
Senior Matters
Important Dates - Jr & Sr
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Certificate Program: Physics and Finance
If you are interested in finance and in physics,
it might be a good idea for you to get into finance
through physics. Either a straight physics education or
a major in physics combined with certificate in finance
(http://www.princeton.edu/~bcf/certificate.htm) would open you many career opportunities.
Physics education and physicist's mindset in finance
The field of finance focuses on the pricing of financial assets, including
equities, bonds, currencies, and derivative securities; portfolio management
and the evaluation of financial risks; banking and financial intermediation;
the financing of corporations; corporate governance; financial-market and banking
regulation; and many other topics.
The need for quantitative methods in the financial world has led an increasing number
of physicists to join finance and investment banking. This is because a physics education
is a very quantitative and rigorous education, which provides the skills to think analytically,
to formulate problems in rigorous mathematical terms, and to solve them. Most large and small
financial institutions now employ physicists, either with a graduate and an undergraduate degree.
The Princeton University physics department routinely receives requests by financial firms to
advertise jobs openings among its students, both graduate and undergraduates.
Application of physics to finance
Physics techniques and concepts also are now finding their way into finance.
The partial differential equation that describes the value of a stock option is
the heat diffusion equation from thermodynamics. Path integral techniques are used
to compute the value of financial derivatives. Path integral descriptions of various
stock option formulas have been proposed, and their quantum mechanics version has
recently been developed. It looks like the interaction between physics and finances
is just beginning. Below you will find precise examples.
Research topics
There are various physicists in the Princeton area actively working
in finance who are interested in supervising junior and senior
papers at the interface of physics and finance. A recent example is the senior thesis of Julian Rachlin. Another example is the 2005 junior paper,
Extreme Value Theory: Bright Cluster Galaxies and the Stock Market, by Cecilia Muldoon. Both papers, written under the
supervision of Gyan Bhanot (IBM and IAS), use extreme value theory to find unusual stocks.
The physics connection is that similar ideas are used to separate binary galaxies from normal
galaxies using sampling theory on luminosity measurements in galactic clusters.
A long list of reading material could be suggested on applications of statistical mechanics,
percolation theory, gauge theories, quantum mechanics, etc.. to the stock market.
A couple of random references are:
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