Exploring chaos and sensitivity in the Ivancevic option pricing model through perturbation analysis

• Published in: PloS one 2024-11, Vol.19 (11), p.e0312805
• Main Authors: Jhangeer, Adil, R Ansari, Ali, Abdul Rahimzai, Ariana, Beenish, Qadeer Khan, Abdul
• Format: Article
• Language: English
• Subjects: Algorithms; Analysis; Biology and Life Sciences; Commerce - economics; Computer and Information Sciences; Costs and Cost Analysis; Differential equations; Differential equations, Nonlinear; Engineering and Technology; Humans; Models, Economic; Nonlinear Dynamics; Perturbation (Mathematics); Physical Sciences; Price indexes
• ISSN: 1932-6203; 1932-6203
• DOI: 10.1371/journal.pone.0312805

This study explores the Ivancevic Option Pricing Model, a nonlinear wave-based alternative to the Black-Scholes model, using adaptive nonlinear Schrödingerr equations to describe the option-pricing wave function influenced by stock price and time. Our focus is on a comprehensive analysis of this equation from multiple perspectives, including the study of soliton dynamics, chaotic patterns, wave structures, Poincaré maps, bifurcation diagrams, multistability, Lyapunov exponents, and an in-depth evaluation of the model's sensitivity. To begin, a wave transformation is applied to convert the partial differential equation into an ordinary differential equation, from which soliton solutions are derived using the [Formula: see text] method. We explore various forms of the option price function at different time points, including singular-kink, periodic, hyperbolic, trigonometric, exponential, and complex solutions. Furthermore, we simulate 3D surface plots and 2D graphs for the real, imaginary, and modulus components of some of the obtained solutions, assigning specific parameter values to enhance visualization. These graphical representations offer valuable insights into the dynamics and patterns of the solutions, providing a clearer understanding of the model's behavior and potential applications. Additionally, we analyze the system's dynamic behavior when a perturbing force is introduced, identifying chaotic patterns using the Lyapunov exponent, Sensitivity, multistability analysis, RK4 method, wave structures, bifurcation diagrams, and Poincaré maps.