Stock market forces can be modeled with a quantum harmonic oscillator

phys.org | 2/14/2018 | Staff
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Traditionally, a quantum harmonic oscillator model is used to describe the tiny vibrations in a diatomic molecule, but the description is also universal in the sense that it can be extended to a variety of other situations in physics and beyond. One example of this is illustrated in a new study, in which researchers show that the restoring force in a vibrating quantum harmonic oscillator provides a good approximation of the market force that restores a fluctuating stock return to equilibrium.

The researchers, K. Ahn and coauthors, have published a paper on their application of a quantum harmonic oscillator to the dynamics of stock returns in a recent issue of EPL.

Stock - Return - Distributions - Quantum - Oscillator

"We improve modeling of stock return distributions by proposing a quantum harmonic oscillator as a model for the market force which draws stock returns from short-run fluctuations to the long-run equilibrium," coauthor Moo Young Choi at Seoul National University told Phys.org. "The well-developed quantum method provides us both an analytical solution to the stock return distribution and insight into the essentials of stock return behaviors."

Over the past several years, it has become more common to analyze the dynamics of stock prices by using quantum physics models, such as those that describe the movement of a trapped particle in a well or a particle undergoing quantum Brownian motion. One advantage of quantum models over traditional ones is that they are often better at incorporating the effects of market conditions on stock returns, which arises from how the quantum models account for the particles' energy levels. This leads to more accurate modeling overall.

Study - Researchers - Market - Force - Models

In the new study, the researchers focused on modeling a particular market force that has been difficult to capture in previous models. Empirical evidence shows that, when a stock return is fluctuating in the short term, there exists a market force...
(Excerpt) Read more at: phys.org
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