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Quantum theory of securities price formation in financial markets

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  • Jack Sarkissian

Abstract

We develop a theory of securities price formation and dynamics based on quantum approach and without presuming any similarities with quantum mechanics. Disorder introduced by trading environment leads to probability distribution of returns that is not a smooth curve, but a speckle-pattern fluctuating in both price coordinate and time. This means that any given return can at times acquire a substantial probability of occurring while remaining low on average in time. Still, due to local character of order interaction during price formation the distribution width grows smoothly, has a minimum value at small time scale and a square root behavior at large time scale. Examples of calibration to market data, both intraday and daily, are provided.

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  • Jack Sarkissian, 2016. "Quantum theory of securities price formation in financial markets," Papers 1605.04948, arXiv.org, revised May 2016.
    • Handle: RePEc:arx:papers:1605.04948
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    References listed on IDEAS

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    8. Jack Sarkissian, 2013. "Coupled mode theory of stock price formation," Papers 1312.4622, arXiv.org.
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    Cited by:

    1. Francisco Guijarro & Ismael Moya-Clemente & Jawad Saleemi, 2021. "Market Liquidity and Its Dimensions: Linking the Liquidity Dimensions to Sentiment Analysis through Microblogging Data," JRFM, MDPI, vol. 14(9), pages 1-12, August.
    2. Sarkissian, Jack, 2020. "Quantum coupled-wave theory of price formation in financial markets: Price measurement, dynamics and ergodicity," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 554(C).
    3. Haoran Zheng & Jing Bai, 2024. "Quantum Leap: A Price Leap Mechanism in Financial Markets," Mathematics, MDPI, vol. 12(2), pages 1-27, January.

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