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Quantum extension of European option pricing based on the Ornstein–Uhlenbeck process

Author

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  • Piotrowski, Edward W.
  • Schroeder, Małgorzata
  • Zambrzycka, Anna

Abstract

In this paper we propose an option pricing model based on the Ornstein–Uhlenbeck process. It is a fresh look at the option pricing which is grounded on the quantum game theory and it is more subtle. We show the differences between a classical look which is price changing by a Wiener process and the pricing supported by a quantum model. These differences are visible for very liquid financial instruments.

Suggested Citation

  • Piotrowski, Edward W. & Schroeder, Małgorzata & Zambrzycka, Anna, 2006. "Quantum extension of European option pricing based on the Ornstein–Uhlenbeck process," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 368(1), pages 176-182.
    • Handle: RePEc:eee:phsmap:v:368:y:2006:i:1:p:176-182
    DOI: 10.1016/j.physa.2005.12.021
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    References listed on IDEAS

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    1. Piotrowski, Edward W. & Sładkowski, Jan, 2005. "Quantum diffusion of prices and profits," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 345(1), pages 185-195.
    2. Edward Piotrowski & Jan Sładkowski, 2004. "Quantum games in finance," Quantitative Finance, Taylor & Francis Journals, vol. 4(6), pages 61-67.
    3. Perelló, Josep & Masoliver, Jaume, 2003. "Option pricing and perfect hedging on correlated stocks," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 330(3), pages 622-652.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. L. Ingber, 2018. "Quantum path integral for financial options," Lester Ingber Papers 18qp, Lester Ingber.
    2. L. Ingber, 2018. "Quantum Variables in Finance and Neuroscience," Lester Ingber Papers 18qv, Lester Ingber.
    3. L. Ingber, 2017. "Quantum Path-Integral qPATHINT Algorithm," Lester Ingber Papers 17qa, Lester Ingber.
    4. L. Ingber, 2016. "Path-integral quantum PATHTREE and PATHINT algorithms," Lester Ingber Papers 16pi, Lester Ingber.
    5. L. Ingber, 2017. "Options on quantum money: Quantum path-integral with serial shocks," Lester Ingber Papers 17oq, Lester Ingber.
    6. Orrell, David, 2020. "A quantum model of supply and demand," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 539(C).
    7. Khrennikova, Polina, 2016. "Application of quantum master equation for long-term prognosis of asset-prices," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 450(C), pages 253-263.
    8. L. Ingber, 2020. "Revisiting Our Quantum World," Lester Ingber Papers 20rq, Lester Ingber.
    9. L. Ingber, 2017. "Evolution of regenerative Ca-ion wave-packet in neuronal-firing fields: Quantum path-integral with serial shocks," Lester Ingber Papers 17qp, Lester Ingber.
    10. Pineiro-Chousa, Juan & Vizcaíno-González, Marcos, 2016. "A quantum derivation of a reputational risk premium," International Review of Financial Analysis, Elsevier, vol. 47(C), pages 304-309.
    11. L. Ingber, 2021. "Hybrid classical-quantum computing: Applications to statistical mechanics of financial markets," Lester Ingber Papers 21cq, Lester Ingber.

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