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The Inverted Parabola World of Classical Quantitative Finance: Non-Equilibrium and Non-Perturbative Finance Perspective

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  • Igor Halperin

Abstract

Classical quantitative finance models such as the Geometric Brownian Motion or its later extensions such as local or stochastic volatility models do not make sense when seen from a physics-based perspective, as they are all equivalent to a negative mass oscillator with a noise. This paper presents an alternative formulation based on insights from physics.

Suggested Citation

  • Igor Halperin, 2020. "The Inverted Parabola World of Classical Quantitative Finance: Non-Equilibrium and Non-Perturbative Finance Perspective," Papers 2008.03623, arXiv.org.
    • Handle: RePEc:arx:papers:2008.03623
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    References listed on IDEAS

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    1. Frazzini, Andrea & Lamont, Owen A., 2008. "Dumb money: Mutual fund flows and the cross-section of stock returns," Journal of Financial Economics, Elsevier, vol. 88(2), pages 299-322, May.
    2. William F. Sharpe, 1964. "Capital Asset Prices: A Theory Of Market Equilibrium Under Conditions Of Risk," Journal of Finance, American Finance Association, vol. 19(3), pages 425-442, September.
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    Cited by:

    1. Halperin, Igor, 2022. "Non-equilibrium skewness, market crises, and option pricing: Non-linear Langevin model of markets with supersymmetry," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 594(C).

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