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Quantum Tunneling of Stock Price in Range Bound Market Conditions

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  • Ovidiu Racorean

Abstract

Applications of Quantum Tunneling effect have long gone beyond the traditional physical meaning. Initially created by Gamow to explain {\alpha}-decay of nuclear particles, along the time, quantum tunneling found fertile domain of research in chemistry and recently in biology, where the new discipline of Quantum Biology emerges. The present paper extends the applicability of quantum tunneling to financial markets. In a recent paper [1] a time-independent equation for pricing the options having the underlying stock in a range bound markets is found. The equation is identical with a time-independent Schrodinger equation but incorporates elements of finance. The financial time-independent equation for option pricing is solved to explain a particular explosive violent movement of stock price in range bound markets. The aforementioned particular stock price movement is assimilated with a quantum tunneling effect. The probability of stock price to quantum tunneling out of the bounded region, known as transmission coefficient, is deduced. Quantum aspects of tunneling effect in financial markets are discussed. Recent evidences of price quantum tunneling in stock market are also shown.

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File URL: http://arxiv.org/pdf/1307.6727
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Paper provided by arXiv.org in its series Papers with number 1307.6727.

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Date of creation: Jul 2013
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Handle: RePEc:arx:papers:1307.6727

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Web page: http://arxiv.org/

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  1. Robert C. Merton, 1973. "Theory of Rational Option Pricing," Bell Journal of Economics, The RAND Corporation, vol. 4(1), pages 141-183, Spring.
  2. Ovidiu Racorean, 2013. "Time-independent pricing of options in range bound markets," Papers 1304.6846, arXiv.org, revised Jul 2013.
  3. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-54, May-June.
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