IDEAS home Printed from https://ideas.repec.org/a/eee/phsmap/v554y2020ics0378437120300911.html
   My bibliography  Save this article

Quantum coupled-wave theory of price formation in financial markets: Price measurement, dynamics and ergodicity

Author

Listed:
  • Sarkissian, Jack

Abstract

We explore nature of price formation in financial markets and develop a theory of bid and ask price dynamics in which the two prices form due to quantum-chaotic interaction between buy and sell orders. In this model bid and ask prices are represented by eigenvalues of a 2x2 price operator corresponding to “bid” and “ask” eigenstates, while randomness of price operator results in price fluctuations that destroy oscillatory effects. We show that this theory adequately captures behavior of bid–ask spread and allows to model bid and ask price dynamics in a coordinated way. We also discuss ergodicity properties of price formation and show how directional price movement occurs due to ergodicity violation in a quantum process instead of the commonly believed forces acting on price. This theory has wide range of applications such as trade execution modeling, large order pricing and risk valuation for illiquid securities.

Suggested Citation

  • 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).
    • Handle: RePEc:eee:phsmap:v:554:y:2020:i:c:s0378437120300911
    DOI: 10.1016/j.physa.2020.124300
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0378437120300911
    Download Restriction: Full text for ScienceDirect subscribers only. Journal offers the option of making the article available online on Science direct for a fee of $3,000
    File URL: https://libkey.io/10.1016/j.physa.2020.124300?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Charles R. Plott & Kirill Pogorelskiy, 2017. "Call Market Experiments: Efficiency and Price Discovery through Multiple Calls and Emergent Newton Adjustments," American Economic Journal: Microeconomics, American Economic Association, vol. 9(4), pages 1-41, November.
    2. Hirshleifer,Jack & Glazer,Amihai & Hirshleifer,David, 2005. "Price Theory and Applications," Cambridge Books, Cambridge University Press, number 9780521523424, October.
    3. Halperin, Igor & Dixon, Matthew, 2020. "“Quantum Equilibrium-Disequilibrium”: Asset price dynamics, symmetry breaking, and defaults as dissipative instantons," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 537(C).
    4. Jack Sarkissian, 2016. "Spread, volatility, and volume relationship in financial markets and market making profit optimization," Papers 1606.07381, arXiv.org.
    5. Orrell, David, 2020. "A quantum model of supply and demand," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 539(C).
    6. Jack Sarkissian, 2016. "Quantum theory of securities price formation in financial markets," Papers 1605.04948, arXiv.org, revised May 2016.
    7. Caginalp, Carey & Caginalp, Gunduz, 2019. "Price equations with symmetric supply/demand; implications for fat tails," Economics Letters, Elsevier, vol. 176(C), pages 79-82.
    8. Jack Sarkissian, 2013. "Coupled mode theory of stock price formation," Papers 1312.4622, arXiv.org.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Haoran Zheng & Jing Bai, 2024. "Quantum Leap: A Price Leap Mechanism in Financial Markets," Mathematics, MDPI, vol. 12(2), pages 1-27, January.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Jack Sarkissian, 2020. "Quantum coupled-wave theory of price formation in financial markets: price measurement, dynamics and ergodicity," Papers 2002.04212, arXiv.org.
    2. Caginalp, Carey & Caginalp, Gunduz, 2020. "Derivation of non-classical stochastic price dynamics equations," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 560(C).
    3. Gunduz Caginalp, 2020. "Fat tails arise endogenously in asset prices from supply/demand, with or without jump processes," Papers 2011.08275, arXiv.org, revised Mar 2021.
    4. Carey Caginalp & Gunduz Caginalp, 2019. "Derivation of non-classical stochastic price dynamics equations," Papers 1908.01103, arXiv.org, revised Aug 2020.
    5. Caginalp, Carey & Caginalp, Gunduz, 2018. "The quotient of normal random variables and application to asset price fat tails," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 499(C), pages 457-471.
    6. Caginalp, Carey & Caginalp, Gunduz, 2019. "Price equations with symmetric supply/demand; implications for fat tails," Economics Letters, Elsevier, vol. 176(C), pages 79-82.
    7. Haoran Zheng & Jing Bai, 2024. "Quantum Leap: A Price Leap Mechanism in Financial Markets," Mathematics, MDPI, vol. 12(2), pages 1-27, January.
    8. Amitrajeet A. Batabyal & Hamid Beladi, 2022. "The Response of Creative Class Members to Regions Vying to Attract Them With Subsidies," International Regional Science Review, , vol. 45(5), pages 581-600, September.
    9. Amitrajeet A. Batabyal & Hamid Beladi, 2022. "Commuting to work in cities: Bus, car, or train?," Regional Science Policy & Practice, Wiley Blackwell, vol. 14(3), pages 599-609, June.
    10. Fischer, Barbara & Telser, Harry & Zweifel, Peter, 2018. "End-of-life healthcare expenditure: Testing economic explanations using a discrete choice experiment," Journal of Health Economics, Elsevier, vol. 60(C), pages 30-38.
    11. Vasant, P. Ghandi & Zhang-Yue, Zhou, 2010. "Rising demand for livestock products in India: nature, patterns and implications," Australasian Agribusiness Review, University of Melbourne, Department of Agriculture and Food Systems, vol. 18, pages 1-33.
    12. Jack Hirshleifer, 2000. "Game-Theoretic Interpretations of Commitment," UCLA Economics Working Papers 799, UCLA Department of Economics.
    13. Hohfeld, Lena & Waibel, Hermann, 2013. "Investments of Rural Households in Northeast Thailand and the Future of Small Scale Farming," Quarterly Journal of International Agriculture, Humboldt-Universitaat zu Berlin, vol. 52(3), pages 1-20, August.
    14. Stefanec, Noah Patrick, 2010. "Incentive pay: Productivity, sorting, and adjacent rents," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 39(2), pages 171-179, April.
    15. Stefan Buehler & Daniel Halbheer & Michael Lechner, 2017. "Payment Evasion," Journal of Industrial Economics, Wiley Blackwell, vol. 65(4), pages 804-832, December.
    16. Henry Tulkens, 2016. "COP 21 and Economic Theory: Taking Stock," Revue d'économie politique, Dalloz, vol. 126(4), pages 471-486.
    17. Hans Ole Riddervold & Ellen Krohn Aasg{aa}rd & Lisa Haukaas & Magnus Korp{aa}s, 2021. "Internal hydro- and wind portfolio optimisation in real-time market operations," Papers 2102.10098, arXiv.org.
    18. Dóci, Gabriella & Vasileiadou, Eleftheria, 2015. "“Let׳s do it ourselves” Individual motivations for investing in renewables at community level," Renewable and Sustainable Energy Reviews, Elsevier, vol. 49(C), pages 41-50.
    19. Giancarlo Ianulardo & Aldo Stella, 2022. "Towards a unity of sense: A critical analysis of the concept of relation in methodological individualism and holism in Economics," Working Papers hal-03771892, HAL.
    20. Koji Kotani & Kenta Tanaka & Shunsuke Managi, 2019. "Which performs better under trader settings, double auction or uniform price auction?," Experimental Economics, Springer;Economic Science Association, vol. 22(1), pages 247-267, March.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:phsmap:v:554:y:2020:i:c:s0378437120300911. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.journals.elsevier.com/physica-a-statistical-mechpplications/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.