A quantum oscillator model of stock markets

Abstract

This paper presents a quantum harmonic oscillator model of price fluctuations in a stock market. The model builds on a previously-published quantum model of supply and demand, and is compared with other existing quantum models of stock markets, including quantum harmonic oscillator, square-well, anharmonic oscillator, and two-state models. It can also be viewed as a quantized version of a classical econometrics model first proposed in 1933. An advantage of the approach is that it interprets market behavior in terms of entropic forces which can account for a variety of behavioral effects of the sort studied in quantum cognition and quantum decision theory. The model also helps to interpret quantities such as force, mass, frequency and energy in a financial setting. The paper uses observed price data to explore and test a hypothesis that markets act to minimize entropy.