Option Pricing beyond Black-Scholes Model: Quantum Mechanics Approach

Pengpeng Li (School of Physics, State Key Laboratory of Optoelectronic Material and Technology, Guangdong Province Key Laboratory of Display Material and Technology, Sun Yat-Sen University, Guangzhou, 510275, China)
Shidong Liang (School of Physics, State Key Laboratory of Optoelectronic Material and Technology, Guangdong Province Key Laboratory of Display Material and Technology, Sun Yat-Sen University, Guangzhou, 510275, China)

Article ID: 2311

DOI: https://doi.org/10.30564/jesr.v3i4.2311

Abstract


Based on the analog between the stochastic dynamics and quantum harmonic oscillator, we propose a market force driving model to generalize the Black-Scholes model in finance market. We give new schemes of option pricing, in which we can take various unexpected market behaviors into account to modify the option pricing. As examples, we present several market forces to analyze their effects on the option pricing. These results provide us two practical applications. One is to be used as a new scheme of option pricing when we can predict some hidden market forces or behaviors emerging. The other implies the existence of some risk premium when some unexpected forces emerge.


Keywords


Black-Scholes model;Quantum harmonic oscillator;Quantum finance

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References


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