Non-equilibrium skewness, market crises, and option pricing: Non-linear Langevin model of markets with supersymmetry
| Autor: | Igor Halperin |
|---|---|
| Rok vydání: | 2022 |
| Předmět: |
FOS: Computer and information sciences
Statistics and Probability Computer Science - Machine Learning History Polymers and Plastics Gaussian Computational Finance (q-fin.CP) Industrial and Manufacturing Engineering Machine Learning (cs.LG) Computational Engineering Finance and Science (cs.CE) FOS: Economics and business symbols.namesake Quantitative Finance - Computational Finance Statistical physics Supersymmetric quantum mechanics Business and International Management Computer Science - Computational Engineering Finance and Science Langevin dynamics Mathematics Stationary distribution Statistical and Nonlinear Physics Supersymmetry Skewness Valuation of options Kurtosis symbols |
| Zdroj: | Physica A: Statistical Mechanics and its Applications. 594:127065 |
| ISSN: | 0378-4371 |
| DOI: | 10.1016/j.physa.2022.127065 |
| Popis: | This paper presents a tractable model of non-linear dynamics of market returns using a Langevin approach. Due to non-linearity of an interaction potential, the model admits regimes of both small and large return fluctuations. Langevin dynamics are mapped onto an equivalent quantum mechanical (QM) system. Borrowing ideas from supersymmetric quantum mechanics (SUSY QM), a parameterized ground state wave function (WF) of this QM system is used as a direct input to the model, which also fixes a non-linear Langevin potential. Using a two-component Gaussian mixture as a ground state WF with an asymmetric double well potential produces a tractable low-parametric model with interpretable parameters, referred to as the NES (Non-Equilibrium Skew) model. Supersymmetry (SUSY) is then used to find time-dependent solutions of the model in an analytically tractable way. Additional approximations give rise to a final practical version of the NES model, where real-measure and risk-neutral return distributions are given by three component Gaussian mixtures. This produces a closed-form approximation for option pricing in the NES model by a mixture of three Black-Scholes prices, providing accurate calibration to option prices for either benign or distressed market environments, while using only a single volatility parameter. These results stand in stark contrast to the most of other option pricing models such as local, stochastic, or rough volatility models that need more complex specifications of noise to fit the market data. 39 pages, 11 figures. Changes in Sect. 4.2 and in numerical examples |
| Databáze: | OpenAIRE |
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