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Feynman’s method of path integration offers an alternative to the conventional solutions to the Schrodinger’s equation. Path integrals provide not only a new computational approach to quantum mechanics, but also a different conceptual perspective of view. The advantage of path integral manifests itself particularly when the number of particles (or number of degrees of freedom) of the many-body system increases. Furthermore, the formalism derived for the dynamics of a system can, after slight modification, be applied to calculate interesting quantities of systems in thermodynamic equilibrium.
KeywordsStock Price Option Price Importance Sampling Strike Price Path Integral Method
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- A more general path-integral formula for options pricing with variable volatility was derived in, B.E. Baaquie, “A Path Integral Approach to Option Pricing with Stochastic Volatility: Some Exact Results”, J. de Phys. I (France), 7 (1997) 1733–1753, available at xxx.lanl.gov/cond-mat/9708178 22 Aug 1997CrossRefGoogle Scholar
- A path integral Monte Carlo evaluation of options prices can be found in, M.S. Makivic, “Numerical Pricing of Derivative Claims: Path Integral Monte Carlo Approach”, NPAC Technical Report SCCS 650, Syracuse University, 1994Google Scholar