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Published online by Cambridge University Press: 11 April 2011
The 2008 economic crisis has shown that the capital markets need new and fresh theoretical and mathematical concepts for designing and pricing financial instruments. Focusing on interest rates and coupon bonds, this book does not employ stochastic calculus – the bedrock of the present-day mathematical finance – for any of the derivations. Interest rates and coupon bonds are studied in the self-contained framework of quantum finance that is independent of stochastic calculus. Quantum finance provides solutions and results that go beyond the formalism of stochastic calculus.
It is five years since Quantum Finance was published in 2004 and it is indeed gratifying to see how well it has been received. No attempt has been made to re-work the principles of finance. Rather, the main thrust of this book is to employ the methods of theoretical physics in addressing the subject of finance. Theoretical physics has accumulated a vast and rich repertoire of mathematical concepts and techniques; it is only natural that this treasure house of quantitative tools be employed to analyze the field of finance, and the debt market in particular.
The term ‘quantum’ in Quantum Finance refers to the use of quantum mathematics, namely the mathematics and theoretical concepts of quantum mechanics and quantum field theory, in analyzing and studying finance. Finance is an entirely classical subject and there is no ħ – Planck's constant, the sine qua non of quantum phenomena – in quantum finance: the term ‘quantum’ is a metaphor.
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