Abstract
Option pricing models are formulated based on mathematical theories.
They are applied to estimate the fair value of an option. Among
different pricing models, the linear Black-Scholes equation is very
frequently used as option pricing model. Since assumptions of this
linear model do not match precisely the real market conditions and do
not allow to estimate the option price precisely there are developed
more complicated non-linear Black-Scholes option pricing models. In
these models volatility of underlying asset price or market risk free
interest rate are assumed stochastic or time dependent. Moreover
transaction costs are also taken into account. Quantum mechanics
provides other approach to calculate option values using non-linear
models. This approach is based on the similarity between the evolution
of elementary particles in space and the volatility of the stock prices.
In previous paper the authors have proposed non-linear Black-Scholes
model to calculate option price based on quantum dynamics approach. This
model has been obtained by suitable transformation of variables in
non-linear Schrödinger equation with the external potential term. In
this paper the non-linear quantum based option pricing model is
numerically tested and verified. Based on this model, the calculation of
European, Asian and American call option prices for market data is
provided. The model parameters, especially the adaptive market
potential, have been estimated based on market prices of European call
options listed on Warsaw Stock Exchange as well as American call options
prices based on the selected NYSE stock prices. The sensitivity of this
model with respect to risk free interest rate has been investigated. For
the sake of comparison non-linear Heston option pricing model has been
also solved and calibrated using Monte Carlo method. The comparison of
option pricing using the developed quantum based model, linear
Black-Scholes model, Heston model, indicates higher precision and lower
computational costs of the proposed enhanced non-linear model.