All I "know" about using path integral techniques to price options comes from reading some popular accounts. I read somewhere that the Black-Scholes model did give a sensible way to price options, and that the path integral representation for the solutions to the stochastic differential equation that is at the heart of the model gave some students of particle physics an alternative to "being unemployed in Greenland" (as Vizzini once put it). I suspect that Jim is right about the overkill aspects of this application but it does seem more benign than the "tranches" scheme for slicing up risk in CDO's which also came with some mathematical credentials.
John P.
farmelantj at juno.com wrote:
> Well Les, I guess if you weren't teaching physics,
> you too could be doing this kind of stuff for Wall Street.
> My hunch is that this probably mathematical overkill,
> which is bringing to bear, mathematical tools far in
> excess what is required by the problems at hand.
> But if it keeps physicists employed and all the
> talk about Feynman path integrals and QFT seems
> to impress the Wall Street types who have no idea
> what these things are anyway, then who cares.
>
> Jim F.
>
> -- Les Schaffer <schaffer at optonline.net> wrote:
> John Palmer wrote:
>
>> Perhaps the most interesting aspect of the Lagrangian formulation of
>> mechanics is a connection with quantum mechanics discovered by R.
>> Feynman.
>>
>
> John:
>
> any thoughts on the use of QFT to price options:
>
> http://portal.acm.org/citation.cfm?id=606927.606964&coll=GUIDE&dl=GUIDE
> http://www.citeulike.org/user/pdlug/article/1053265
>
> etc etc.
>
> Les
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