Quantum Theory for the Binomial Model in Finance Thoery

Details Quantum Theory for the Binomial Model in Finance Thoery Quantum Theory for the Binomial Model in Finance Thoery

2001-12-25

arxiv.org/abs/quant-ph/0112156v6

Journal of Systems Science and Complexity, vol.17, 567-573(2004)

Physics

Quantum Physics

Latex, 8 pages,1 figure, revised version,submitted

Scientific paper

In this paper, a quantum model for the binomial market in finance is proposed. We show that its risk-neutral world exhibits an intriguing structure as a disk in the unit ball of ${\bf R}^3,$ whose radius is a function of the risk-free interest rate with two thresholds which prevent arbitrage opportunities from this quantum market. Furthermore, from the quantum mechanical point of view we re-deduce the Cox-Ross-Rubinstein binomial option pricing formula by considering Maxwell-Boltzmann statistics of the system of $N$ distinguishable particles.

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