A Quantum Mechanics for interest rate derivatives markets

Alberto Bueno-Guerrero

Chaos, Solitons & Fractals, 2022, vol. 155, issue C

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.

Keywords: Quantum mechanics; Hamiltonian operator; Schrödinger equation; Option pricing; Perturbation theory (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:chsofr:v:155:y:2022:i:c:s0960077921010808

DOI: 10.1016/j.chaos.2021.111726

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