Black-Scholes equation from Gauge Theory of Arbitrage

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We apply Gauge Theory of Arbitrage (GTA) {hep-th/9710148} to derivative pricing. We show how the standard results of Black-Scholes analysis appear from GTA and derive correction to the Black-Scholes equation due to a virtual arbitrage and speculators reaction on it. The model accounts for both violation of the no-arbitrage constraint and non-Brownian price walks which resemble real financial data. The correction is nonlocal and transform the differential Black-Scholes equation to an integro-differential one.
Latex, 19 pages

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High Energy Physics - Theory, Statistical Mechanics, High Energy Physics - Lattice, Physics and Society, Pricing of Securities

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http://salesiana.dossiersoluciones.com/handle/123456789/220495

Consulte el texto completo en el siguiente enlace:

https://arxiv.org/abs/hep-th/9712034
 http://arxiv.org/abs/hep-th/9712034

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arXiv