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A Quantum Mechanics for interest rate derivatives markets

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  • Bueno-Guerrero, Alberto

Abstract

We present a model-free axiomatic formulation of Option Pricing Theory for interest rate derivatives. In this setting, completely analogous to axiomatic Quantum Mechanics, the role of the wave function is played by the discounted zero-coupon bond price. The theory is linked to term structure models through the Hamiltonian operator, and we show that its associated Schrödinger equation is consistent with the [25] model. We also find the quantum-mechanical equivalent of the standard risk-neutral option pricing formula.

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  • Bueno-Guerrero, Alberto, 2022. "A Quantum Mechanics for interest rate derivatives markets," Chaos, Solitons & Fractals, Elsevier, vol. 155(C).
    • Handle: RePEc:eee:chsofr:v:155:y:2022:i:c:s0960077921010808
    DOI: 10.1016/j.chaos.2021.111726
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    Cited by:

    1. Zhai, Dongsheng & Zhang, Tianrui & Liang, Guoqiang & Liu, Baoliu, 2024. "Quantum carbon finance: Carbon emission rights option pricing and investment decision," Energy Economics, Elsevier, vol. 134(C).

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