Quantum finance equation explanation please

In summary: Springer. ISBN 978-3-540-79485-7.In summary, the author normalizes the price of a quantum asset using a scaling which is based on the standard deviation of the wave function solution of a Schrodinger equation.
  • #1
yosmod04
5
0
TL;DR Summary
I am interested in knowing how to connect the eigenvalues of a non harmonic Schrodinger equation with the price levels of exchange rates.
Dear all,
Dr. Raymond S. T. Lee in his book on Quantum Finance (page 112), normalizes quantum price return QPR(n) using the following scaling:

Normalized QPR(n)=1+0.21*sigma*QPR(n).

I don't know of any way of explaining this equation.
sigma is the standard deviation of the wave function solution of a Schrodinger equation.
QPR(n)=E(n)/E(0), where E are the eigenvalues of an an-harmonic quantum oscillator (Schrodinger equation with a quadratic and a quartic term)
Thanks!
 
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  • #3
Many thanks. The wiki article is interesting but it deals with other aspects of the theory, like the quantum binomial model. I am looking for the explanation of a very specific question regarding the scaling/normalization of the price function.
 
  • #4
yosmod04 said:
I am looking for the explanation of a very specific question regarding the scaling/normalization of the price function.
In that case, I would ask economists, not physicists.
 
  • #5
Economists know nothing about Quantum Mechanics. This is a question about re-scaling of a function, that is not the wave function but a distribution function. The model is for economists but the theory is pure physics. I thought is related to some kind of statistics because of the presence of sigma.
 

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  • #6
yosmod04 said:
Economists know nothing about Quantum Mechanics. This is a question about re-scaling of a function, that is not the wave function but a distribution function. The model is for economists but the theory is pure physics. I thought is related to some kind of statistics because of the presence of sigma.
This is nothing to do with physics. Might as well call this Quiddich Finance instead of Quantum Finance. I don't have access to the book, but by what can be read in Google Books, the author understands virtually nothing about quantum mechanics (the introduction reads like a bad popular science explanation of QM).
 
  • #7
Agree with you on that, the book is terribly written. I am giving him the benefit of the doubt and trying to make sense of his model. You will find hard to believe, but the book was published by Springer. Springer used to be a very serious editorial house. I wrote to the author but haven't received any answer from him regarding this issue.
 
  • #8
Editors are always dependent on referees/external advisors.

I had never hear of quantum finance before reading your post. It appears to be an actual academic field, but I am not yet convinced it is a legitimate field of academia.
 
  • #9
Just because an equation has the same form as an equation used in physics, that does not mean that it relates to physics.

There are only a finite number of simple useful equations to share among all fields.

Newton's second law F=ma. Can you think of equations in economics that have the same form? That does not relate them to Newton.
 
  • #10
I think that it is not as bad as you suggest. There are some very serious people that have published good work: Haven, Emmanuel (2002). "A discussion on embedding the Black–Scholes option pricing model in a quantum physics setting". Physica A: Statistical Mechanics and Its Applications. 304 (3–4): 507–524., and Baaquie, Belal E.; Coriano, Claudio; Srikant, Marakani (2002). "Quantum Mechanics, Path Integrals and Option Pricing: Reducing the Complexity of Finance". Nonlinear Physics. Nonlinear Physics - Theory and Experiment Ii. p. 8191 .
 

1. What is quantum finance?

Quantum finance is a field of study that applies principles and techniques from quantum mechanics to financial systems and markets. It aims to improve our understanding and prediction of financial markets by incorporating the probabilistic and unpredictable nature of quantum mechanics.

2. What is the quantum finance equation?

The quantum finance equation is a mathematical model that describes the behavior and evolution of financial systems using concepts and principles from quantum mechanics. It takes into account the randomness and uncertainty of financial markets, and can be used to make predictions and inform decision-making in finance.

3. How does quantum finance differ from traditional finance?

Quantum finance differs from traditional finance in that it considers the probabilistic and unpredictable nature of quantum mechanics, while traditional finance relies on deterministic models and assumptions. Quantum finance also takes into account the interconnectedness and complexity of financial systems, whereas traditional finance often simplifies and assumes independence between market variables.

4. Can quantum finance be applied in real-world scenarios?

Yes, quantum finance has been successfully applied in various real-world scenarios, such as portfolio optimization, risk management, and option pricing. However, it is still a developing field and its practical applications are limited compared to traditional finance methods.

5. What are the challenges of using quantum finance?

One of the main challenges of using quantum finance is the complexity and computational resources required to solve the quantum finance equation. Another challenge is the lack of empirical data and real-world applications, which makes it difficult to validate and compare the effectiveness of quantum finance models. Additionally, quantum finance is a relatively new and evolving field, so there is still much research and development needed to fully understand its potential and limitations.

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