Belal Ehsan Baaquie
Two underlying themes run through this book: first, defining and analyzing the subject of quantitative finance in the conceptual and mathematical framework of quantum theory, with special emphasis on its path-integral formulation, and, second, the introduction of the techniques and methodology of quantum field theory in the study of interest rates. No attempt is made to apply quantum theory in re-working the fundamental principles of finance. Instead, the term ‘quantum’ refers to the abstract mathematical constructs of quantum theory that include probability theory, state space, operators, Hamiltonians, commutation equations, Lagrangians, path integrals, quantized fields, bosons, fermions and so on. All these theoretical structures find natural and useful applications in finance. The path integral and Hamiltonian formulations of (random) quantum processes have been given special emphasis since they are equivalent to, as well as independent of, the formalism of stochastic calculus – which currently is one of the cornerstones of mathematical finance. The starting point for the application of path integrals and Hamiltonians in finance is in stock option pricing. Path integrals are subsequently applied to the modelling of linear and nonlinear theories of interest rates as a two-dimensional quantum field, something that is beyond the scope of stochastic calculus. Path integrals have the additional advantage of providing a framework for efficiently implementing the mathematical procedure of renormalization which is necessary in the study of nonlinear quantum field theories. The term ‘Quantum Finance’ represents the synthesis of the concepts, methods and mathematics of quantum theory, with the field of theoretical and applied finance.
Cambridge University Press eBooks•Nov 15, 2004•0 citations