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We review some general aspects about the Black–Scholes equation, which is used for predicting the fair price of an option inside the stock market. Our analysis includes the symmetry properties of the equation and its solutions. We use the Hamiltonian formulation for this purpose. Taking into account that the volatility inside the Black–Scholes equation is a parameter, we then introduce the Merton–Garman equation, where the volatility is stochastic, and then it can be perceived as a field. We then show how the Black–Scholes equation and the Merton–Garman one are locally equivalent by imposing a gauge symmetry under changes in the prices over the Black–Scholes equation. This demonstrates that the stochastic volatility emerges naturally from symmetry arguments. Finally, we analyze the role of the volatility on the decisions taken by the holders of the options when they use the solution of the Black–Scholes equation as a tool for making investment decisions.
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It is known that the probability is not a conserved quantity in the stock market, given the fact that it corresponds to an open system. In this paper we analyze the flow of probability in this system by expressing the ideal Black-Scholes equation in the Hamiltonian form. We then analyze how the non-conservation of probability affects the stability of the prices of the Stocks. Finally, we find the conditions under which the probability might be conserved in the market, challenging in this way the non-Hermitian nature of the Black-Scholes Hamiltonian.
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By using the Hamiltonian formulation, we demonstrate that the Merton-Garman equation emerges naturally from the Black-Scholes equation after imposing invariance (symmetry) under local (gauge) transformations over changes in the stock price. This is the case because imposing gauge symmetry implies the appearance of an additional field, which corresponds to the stochastic volatility. The gauge symmetry then imposes some constraints over the free parameters of the Merton-Garman Hamiltonian. Finally, we analyze how the stochastic volatility gets massive dynamically via Higgs mechanism.
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We demonstrate that black hole evaporation can be modeled as a process where one symmetry of the system is spontaneously broken continuously. We then identify three free parameters of the system. The sign of one of the free parameters governs whether the particles emitted by the black hole are fermions or bosons. The present model explains why the black hole evaporation process is so universal. Interestingly, this universality emerges naturally inside certain modifications of gravity.
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In any physical system, when we move from short to large scales, new spacetime symmetries emerge which help us to simplify the dynamics of the system. In this letter we demonstrate that certain variations on the symmetries of general relativity at large scales generate the effects equivalent to dark matter ones. In particular, we reproduce the Tully-Fisher law, consistent with the predictions proposed by MOND. Additionally, we demonstrate that the dark matter effects derived in this way are consistent with the predictions suggested by MOND, without modifying gravity.
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