Arbitrage risk induced by transaction costs

TL;DR

This paper models stock and commodity prices as an Ising chain and demonstrates that transaction costs create arbitrage risks, which can be analyzed using quantum computing techniques due to their computational complexity.

Contribution

It introduces a novel approach linking Ising models to financial quotation dynamics and highlights the potential of quantum computing for complex portfolio analysis.

Findings

Transaction costs induce arbitrage risk in financial markets.

Stock and commodity prices can be modeled as an Ising chain.

Quantum computing may enable complex portfolio analysis.

Abstract

We discuss the time evolution of quotation of stocks and commodities and show that they form an Ising chain. We show that transaction costs induce arbitrage risk that usually is neglected. The full analysis of the portfolio theory is computationally complex but the latest development in quantum computation theory suggests that such a task can be performed on quantum computers.