AN ELECTRICAL CIRCUIT MIMICS YEN-DOLLAR FLUCTUATIONS. In one of the latest examples of econophysics (Update 395), Hideki Takayasu of the Sony Computer Science Laboratories in Japan (takayasu@csl.sony.co.jp) and his colleagues have designed an electrical circuit with voltage fluctuations that are highly similar to the fluctuations in a plot of the yen-dollar exchange rate. The Sony goal is to build a fast calculator for the prices of options which depend on exchange rates.

In the world of currency exchange, options serve as an insurance policy for a future exchange rate. Buying an option means that you have the right to purchase currency at some point in the future at a predetermined price, even if the actual exchange rate at the time is against your favor.

At the recent APS meeting in Minneapolis, Takayasu showed that graphs of yen-dollar fluctuations look remarkably similar at different time scales, suggesting a fractal behavior. The researchers then designed an inexpensive electrical circuit that produces highly similar fluctuations by employing naturally occurring electrical noise as the seeds for random variations. Their circuit costs approximately $5, and it can estimate yen-dollar fluctuations as fast as the $10,000 workstations that are running mathematical simulations of the exchange rates.