The Inverted Parabola World of Classical Quantitative Finance: Non-Equilibrium and Non-Perturbative Finance Perspective

TL;DR

This paper challenges traditional quantitative finance models by framing them as negative mass oscillators and proposes a physics-inspired alternative formulation to better understand non-equilibrium financial dynamics.

Contribution

It introduces a novel physics-based perspective on finance models, highlighting their limitations and proposing an alternative non-equilibrium framework.

Findings

Classical models are equivalent to negative mass oscillators.

Physics-based formulation offers new insights into non-equilibrium finance.

Potential for improved modeling of financial markets.

Abstract

Classical quantitative finance models such as the Geometric Brownian Motion or its later extensions such as local or stochastic volatility models do not make sense when seen from a physics-based perspective, as they are all equivalent to a negative mass oscillator with a noise. This paper presents an alternative formulation based on insights from physics.