We apply methods of quantum mechanics for mathe-matical modeling of price dynamics at financial mar-ket. We propose to describe behavioral financial factors (e.g., expectations of traders) by using the pilot wave (Bohmian) model of quantum mechanics. Our Bohmian model is a quantum-like model for the financial market, cf. with works of W. Segal, I. E. Segal, E. Haven. Our model expresses complexity of financial market: tra-ditional description of price dynamics is completed by Schrödinger’s dynamics for the pilot wave of expecta-tions of traders. This is a kind of socio-economic model for financial market
We apply methods of quantum mechanics for mathe-matical modeling of price dynamics at financial mar-ket. We propose to describe behavioral financial factors (e.g., expectations of traders) by using the pilot wave (Bohmian) model of quantum mechanics. Our Bohmian model is a quantum-like model for the financial market, cf. with works of W. Segal, I. E. Segal, E. Haven. Our model expresses complexity of financial market: tra-ditional description of price dynamics is completed by Schrödinger’s dynamics for the pilot wave of expecta-tions of traders. This is a kind of socio-economic model for financial market
We apply methods of quantum mechanics for mathematical modeling of price dynamics at the financial market. We propose to describe behavioral financial factors (e.g., expectations of traders) by using the pilot wave (Bohmian) model of quantum mechanics. Trajectories of prices are determined by two financial potentials: classical-like V ( q ) ("hard" market conditions, e.g., natural resources) and quantum-like U ( q ) (behavioral market conditions). On the one hand, our Bohmian model is a quantum-like model for the financial market, cf. with works of W. Segal, I. E. Segal, E. Haven, E. W. Piotrowski, J. Sladkowski. On the other hand, (since Bohmian mechanics provides the possibility to describe individual price trajectories) it belongs to the domain of extended research on deterministic dynamics for financial assets (C.W.J. Granger, W.A. Barnett, A. J. Benhabib, W.A. Brock, C. Sayers, J. Y. Campbell, A. W. Lo, A. C. MacKinlay, A. Serletis, S. Kuchta, M. Frank, R. Gencay, T. Stengos, M. J. Hinich, D. Patterson, D. A. Hsieh, D. T. Caplan, J.A. Scheinkman, B. LeBaron and many others).
We apply methods of quantum mechanics for mathematical modeling of price dynamics at the financial market. We propose to describe behavioral financial factors (e.g., expectations of traders) by using the pilot wave (Bohmian) model of quantum mechanics. Trajectories of prices are determined by two financial potentials: classical-like V(q) ("hard" market conditions, e.g., natural resources) and quantum-like U(q) (behavioral market conditions). On one hand, our Bohmian model is a quantum-like model for the financial market, cf. with works of W. Segal, I. E. Segal, E. Haven, E. W.Piotrowski, J. Sladkowski. On the other hand, (since Bohmian mechanics provides the possibility to describe individual price trajectories) it belongs to the domain of extended research on deterministic dynamics for financial assets (C.W. J. Granger, W.A. Barnett, A. J. Benhabib, W.A. Brock, C. Sayers, J. Y. Campbell, A. W. Lo, A. C. MacKinlay, A. Serletis, S. Kuchta, M. Frank, R. Gencay, T. Stengos, M. J. Hinich, D. Patterson, D. A. Hsieh, D. T. Caplan, J.A. Scheinkman, B. LeBaron and many others).
The pilot wave function and its uses outside of quantum mechanics Let us recall our discussion on Bohmian mechanics in Chapter 6. The idea of using Bohmian mechanics outside of quantum mechanics is not new anymore. Khrennikov [1] provides for an overview on how this model can contribute in precise terms to areas such as economics and finance.1 Historically, the work by Bohm and Hiley [2] and also Hiley and Pylkkanen [3] brought forward the idea that the pilot wave function could be seen as a wave function containing information. In Khrennikov [4], Choustova [5], and Haven [6], the idea of using pilot wave theory to finance was investigated. Khrennikov [1] (p. 160) remarks that “the force induced by the pilot wave field does not depend on the amplitude of the wave.” He cites the argument made by Bohm and Hiley [2] that because of this property the pilot wave is an information wave. The various interpretations (with applications) of the wave function will be covered in detail in Chapter 13. Here are some of the key features which can be of use in an financial/economics setting. When the wave function is not factorized, then a change in the price of a stock i will affect the prices of stocks, j , with j ≠ i . See Khrennikov [1] (p. 161). The Bohmian theory, as we remarked already in Chapters 1 and 6, is non-local.
We apply the mathematical formalism of Bohmian mechanics to describe dynamics of shares. The main distinguishing feature of the financial Bohmian model is the possibility to take into account market psychology by describing expectations of traders by the pilot wave. We also discuss some objections (coming from conventional financial mathematics of stochastic processes) against the deterministic Bohmian model. In particular, the objection that such a model contradicts to the efficient market hypothesis which is the cornerstone of the modern market ideology. Another objection is of pure mathematical nature: it is related to the quadratic variation of price trajectories. One possibility to reply to this critique is to consider the stochastic Bohm‐Vigier model, instead of the deterministic one. We do this in the present note.
We analyze complexity of financial (and general economic) processes by comparing classical and quantum-like models for randomness. Our analysis implies that it might be that a quantum-like probabilistic description is more natural for financial market than the classical one. A part of our analysis is devoted to study the possibility of application of the quantum probabilistic model to agents of financial market. We show that, although the direct quantum (physical) reduction (based on using the scales of quantum mechanics) is meaningless, one may apply so called quantum-like models. In our approach quantum-like probabilistic behaviour is a consequence of contextualy of statistical data in finances (and economics in general). However, our hypothesis on "quantumness" of financial data should be tested experimentally (as opposed to the conventional description based on the noncontextual classical probabilistic approach). We present a new statistical test based on a generalization of the well known in quantum physics Bell's inequality.
Classical and Quantum Physics in Selected Economic Models A growing number of economic phenomena are nowadays described with methods known in physics. The most frequently applied physical theories by economists are: (1) the universal gravitation law and (2) the first and second law of thermodynamics. Physical principles can also be applied to the theory of financial markets. Financial markets are composed of individual participants who may be seen to interact as particles in a physical system. This approach proposes a financial market model known as a minority game model in which securities and money are allocated on the basis of price fluctuations, and where selling is best option when the vast majority of investors tend to purchase goods or services, and vice versa. The players who end up being on the minority side win. The above applications of physical methods in economics are deeply rooted in classical physics. However, this paper aims to introduce the basic concepts of quantum mechanics to the process of economic phenomena modelling. Quantum mechanics is a theory describing the behaviour of microscopic objects and is grounded on the principle of wave-particle duality. It is assumed that quantum-scale objects at the same time exhibit both wave-like and particle-like properties. The key role in quantum mechanics is played by: (1) the Schrödinger equation describing the probability amplitude for the particle to be found in a given position and at a given time, and as (2) the Heisenberg uncertainty principle stating that certain pairs of physical properties cannot be economic applications of the Schrödinger equation as well as the Heisenberg uncertainty principle. We also try to describe the English auction by means the quantum mechanics methods.