Modelling Financial Market Imperfection Using Open Quantum Systems

Will Hicks

Papers from arXiv.org

Abstract: We start with the idea that open quantum systems can be used to represent financial markets by modelling events from the external environment and their impact on the market price. We show how to characterize distinct orbits of the time evolution, and look at the development of the reduced density matrix, that represents the state of the market, over long time frames. In particular we distinguish between classical and non-classical modes of time evolution. We show that whilst both tend to the same set of maximum entropy states, this occurs faster in classical systems, with a knock on effect on the resulting probability distributions. We demonstrate how non-classical modes of time-evolution can be used to incorporate factors such as illiquid trades and imperfect trading mechanisms, and distinguish between different mechanisms of non-classical time evolution.

Date: 2025-05
References: View complete reference list from CitEc
Citations:

Downloads: (external link)
http://arxiv.org/pdf/2505.01284 Latest version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:2505.01284

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().