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Using the Quantum Potential in Elementary Portfolio Management: Some Initial Ideas.
Hossein Khaksar1, Emmanuel Haven2, Sina Nasiri3
1Physics Department, Shahid Beheshti University, Tehran 1983969411, Iran.
Entropy (Basel, Switzerland)
|February 12, 2021
Summary
This study introduces quantum risk to behavioral finance, applying it to portfolio optimization. Results show quantum risk exhibits power law behavior, similar to standard deviation but with distinct exponents.
Area of Science:
- Behavioral Finance
- Quantum Mechanics
- Financial Markets
Background:
- Globalization has led to entangled markets, facilitating quantum mechanics' entry into behavioral finance.
- Traditional financial models may not fully capture complex market behaviors.
Purpose of the Study:
- Introduce and analyze a novel concept of quantum risk.
- Optimize investment portfolios by controlling quantum potential.
- Investigate the behavior of quantum risk in financial markets.
Main Methods:
- Developed a method to quantify and control quantum potential for portfolio optimization.
- Applied the quantum risk analysis to eight major financial indices.
- Constructed a minimum quantum risk portfolio.
Main Results:
- Quantum risk was successfully introduced and analyzed within a portfolio optimization framework.
- The developed method allowed for the construction of a minimum quantum risk portfolio.
- Quantum risk demonstrates power law behavior with a time-scale, analogous to standard deviation but with unique exponents.
Conclusions:
- Quantum risk offers a new perspective for understanding and managing financial market dynamics.
- The power law behavior of quantum risk suggests predictable patterns in market fluctuations.
- This approach provides a novel tool for portfolio optimization in entangled markets.
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