arXiv:2203.07940 · The European Physical Journal B

Quantum effects in an expanded Black–Scholes model

Anantya Bhatnagar, Dimitri D. Vvedensky

Published Aug 1, 2022• 3 citations

Abstract

Abstract: The limitations of the classical Black-Scholes model are examined by comparing calculated and actual historical prices of European call options on stocks from several sectors of the S &P 500. Persistent differences between the two prices point to an expanded model proposed by Segal and Segal (PNAS 95:4072-4075, 1988) in which information not simultaneously observable or actionable with public information can be represented by an additional pseudo-Wiener process. A real linear combination of the original and added processes leads to a commutation relation analogous to that between a boson field and its canonical momentum in quantum field theory. The resulting pricing formula for a European call option replaces the classical volatility with the norm of a complex quantity, whose imaginary part is shown to compensate for the disparity between prices obtained from the classical Black-Scholes model and actual prices of the test call options. This provides market evidence for the influence of a non-classical process on the price of a security based on non-commuting operators. Supplementary Information: The online version contains supplementary material available at 10.1140/epjb/s10051-022-00402-0.

DOI: 10.1140/epjb/s10051-022-00402-0

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