Quantum Tunneling of Stock Price in Range Bound Market Conditions

TL;DR

This paper applies quantum tunneling concepts to financial markets, modeling stock price movements in range-bound conditions and explaining explosive price jumps as quantum tunneling events, with derived probabilities and recent market evidence.

Contribution

It extends quantum tunneling theory to finance by deriving a Schrödinger-like equation for option pricing and modeling explosive stock movements as tunneling phenomena.

Findings

Derived a quantum tunneling model for stock prices in range-bound markets.

Calculated the transmission coefficient for stock price tunneling.

Presented recent market evidence supporting quantum tunneling effects.

Abstract

Applications of Quantum Tunneling effect have long gone beyond the traditional physical meaning. Initially created by Gamow to explain {\alpha}-decay of nuclear particles, along the time, quantum tunneling found fertile domain of research in chemistry and recently in biology, where the new discipline of Quantum Biology emerges. The present paper extends the applicability of quantum tunneling to financial markets. In a recent paper [1] a time-independent equation for pricing the options having the underlying stock in a range bound markets is found. The equation is identical with a time-independent Schrodinger equation but incorporates elements of finance. The financial time-independent equation for option pricing is solved to explain a particular explosive violent movement of stock price in range bound markets. The aforementioned particular stock price movement is assimilated with a quantum tunneling effect. The probability of stock price to quantum tunneling out of the bounded region, known as transmission coefficient, is deduced. Quantum aspects of tunneling effect in financial markets are discussed. Recent evidences of price quantum tunneling in stock market are also shown.