David Orrell. Writer and Mathematician
The Quantum Stock Market: And the Road Not Taken in Finance
Publisher: MIT Press
Publisher's synopsis
A new paradigm based on quantum probability that can model stock markets and price options—and also upends classical quantitative finance.
In The Quantum Stock Market, David Orrell combines theory and new empirical findings to argue for a new approach to finance based on quantum probability. The main finding, a property called q-variance, may be unique in finance in that it was discovered as the result of a prediction, affects financial markets in general, has no tunable parameter, and has important consequences for a range of topics including the pricing of financial options. The property, which somehow eluded detection for over a century, has been verified by experts in the field. And the fact that it is incompatible with classical finance—which is perhaps why it went undetected—suggests that the field must be reinvented.
Orrell argues for nothing less than a paradigm shift in finance. As with any new work that challenges existing methods the ideas have already received pushback, from leaders in the field of finance to physicists skeptical of applying quantum probability outside its traditional domain. Written in an interdisciplinary style that mixes mathematical equations, data analysis, and informed comments on the field of finance, The Quantum Stock Market should be read by anyone who wants to be on the right side of a paradigm shift.
“In my career I've seen too many new models to get excited by yet another. I even have my own! But Orrell's is different, special. He's not trying to simply write lengthy, abstract research papers to impress colleagues. He's not trying to find a pretty formula to which he would add his name, for a shot at immortality. He's not even keeping it secret in order to make heaps of money exploiting it. Orrell had an idea about how transactions affect prices, he used some mathematics from quantum physics to build a model, and with that model he came up with a prediction for how volatility behaves. And then he tested this prediction. And it worked. If you are a scientist reading this blurb then you will say, "So what?" You won't know that quants never do what Orrell did. The usual modelling route goes something like this: Think of a model that is simple enough to have some nice formulae; Write a few research papers; Quants in banks then implement the model. Years later, if ever, some people might actually test the model against data. Some might even say, "But, hey, this model doesn't match the data!" To which the response is, "Well, everyone else is using the model so we had better do the same." No, Orrell did what scientists ought to do. Einstein, whose insights resulted in plenty of predictions that turned out to be correct, would approve. Are we on the edge of a paradigm shift in quantitative finance? Unlikely. Sadly. But you must read this book to see what might possibly be a better model of reality than what all those other quants are using. Will you use it in your research or in your bank? Unlikely again. One of my favourite quotes from John Maynard Keynes is, "Worldly wisdom teaches that it is better for reputation to fail conventionally than to succeed unconventionally." So, no, you won't be using it until everyone else is. ” Paul Wilmott, creator, Wilmott Magazine; author of Paul Wilmott Introduces Quantitative Finance
“The Quantum Stock Market is a wonderful book. The author masterfully creates a quantum model of the stock market based on empirical facts. This is a great achievement. Orrell presents compelling arguments that a quantum approach offers a badly needed change of paradigm of both finance and economic theories.” Sergio Focardi, Professor of Financial Engineering and Risk Management, DIME, University of Genoa; coauthor of Adaptive Finance and Causal Modeling for Finance and Business