INTRODUCTION Though many wouldn’t think that financial market and physicist are much related , Econophysics , a relatively new interdisciplinary research field , proves how notions in physics are able to explain phenomenon in the financial market. This combination between physics and economics allows the business world to better track various risks found in finances and stock markets . Traditionally a quantum harmonic oscillator model is used to describe the tiny vibrations in a diatomic molecule. However it can be applied to variety of other situations beyond physics. The concept can be illustrated by an example that restoring force in vibrating quantum harmonic oscillator provides a good approximation of market force that restores the fluctuating stocks to equilibrium. 1. What is Econophysics?
Econophysics is an interdisciplinary research field, applying theories and methods originally developed by physicist in order to solve problems in economics . Several physicist working in the fields of statistical mechanics , unsatisfied with traditional explanations and approach of economists , applied tools and methods from physics trying to match the financial data and other general economical phenomenon.
Basic tools of econophysics include probabilistic and statistical methods often taken from statistical physics. Classical mechanics and quantum mechanics have been used too .Including classical economy , quantum economics and quantum finances.
Thus Econophysics is actually nothing more than combination of world of physics and economics, a link between the two completely separate disciplines.
2. Can quantum be applied to dynamics of stocks?
Under the hypothesis that the economic world behaves like a collection of electrons or group of water molecules that interact with each other. In classical physics , a harmonic oscillator is a system that swings like a pendulum, away from its equilibrium but has a restoring force that returns it to equilibrium. The quantum harmonic oscillator is also a system that is displaced from equilibrium and has restoring force , but has some differences compared to the classical system , such as that its energy levels are quantized or discrete.
The reason why the correspondence between stock returns and quantum physics work is because market uncertainty corresponds to properties of quantum wave function. In particular the activities of investors can be thought of as pressure on stock prices , and the amount of pressure corresponds to energy levels of oscillating particles. A higher uncertainty is equal to higher energy level. However the uncertainty is limited by financial equivalent of high energy threshold. Thus at certain point the uncertainty reaches equilibrium. Conclusion:
From the obtained information it can be shown that Quantum methods are capable of predicting ups and downs in stock markets. As well as they can be efficiently used to predict and manage risks. Thus quantum tools have clear advantage over the classical methods. This development marks a shift from using quantum mechanics to gain insight into finance, to using quantum systems- quantum computers, to perform the calculations.
References :
Researchgate/AQuantumModelForStockMarket Iknowfirst/QuantumTrading Interpreting economics through physics. By
Abhishek Dani
Assistant Professor
Department of Physics
B.N.Bandodkar College of Science, Thane
&
Campal Kadam
(T.Y.B.Sc. Phy)
Department of Physics
B.N.Bandodkar College of Science, Thane