Understanding complex dynamics in derivatives finance : why do options markets smile?
The origin of the volatility smile phenomenon observed in options markets has eluded the financial world for more than two decades. We provide a new explanation of this phenomenon using a microscopic multi-agent description of markets. In our model individual trading behavior is explicitly included...
| Main Authors: | , , , |
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| Other Authors: | |
| Format: | Journal Article |
| Language: | English |
| Published: |
2013
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| Online Access: | https://hdl.handle.net/10356/95862 http://hdl.handle.net/10220/10121 |
| _version_ | 1811691816921071616 |
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| author | Qiu, G. Kandhai, D. Johnson, N. F. Sloot, Peter M. A. |
| author2 | School of Computer Engineering |
| author_facet | School of Computer Engineering Qiu, G. Kandhai, D. Johnson, N. F. Sloot, Peter M. A. |
| author_sort | Qiu, G. |
| collection | NTU |
| description | The origin of the volatility smile phenomenon observed in options markets has eluded the financial world for more than two decades. We provide a new explanation of this phenomenon using a microscopic multi-agent description of markets. In our model individual trading behavior is explicitly included and the prices of the options are determined by demand and supply. Our results reproduce the empirical observations in respect to the shape and dynamic properties of the volatility smile, suggesting that this phenomenon is a natural consequence of traders' heterogeneous behavior and expectations about the future. |
| first_indexed | 2024-10-01T06:25:55Z |
| format | Journal Article |
| id | ntu-10356/95862 |
| institution | Nanyang Technological University |
| language | English |
| last_indexed | 2024-10-01T06:25:55Z |
| publishDate | 2013 |
| record_format | dspace |
| spelling | ntu-10356/958622020-05-28T07:41:39Z Understanding complex dynamics in derivatives finance : why do options markets smile? Qiu, G. Kandhai, D. Johnson, N. F. Sloot, Peter M. A. School of Computer Engineering The origin of the volatility smile phenomenon observed in options markets has eluded the financial world for more than two decades. We provide a new explanation of this phenomenon using a microscopic multi-agent description of markets. In our model individual trading behavior is explicitly included and the prices of the options are determined by demand and supply. Our results reproduce the empirical observations in respect to the shape and dynamic properties of the volatility smile, suggesting that this phenomenon is a natural consequence of traders' heterogeneous behavior and expectations about the future. 2013-06-10T06:26:37Z 2019-12-06T19:22:26Z 2013-06-10T06:26:37Z 2019-12-06T19:22:26Z 2012 2012 Journal Article Qiu, G., KanDhai, D., Johnson, N. F., & Sloot, P. M. A. (2012). Understanding complex dynamics in derivatives finance : why do options markets smile?. Advances in Complex Systems, 15(7). https://hdl.handle.net/10356/95862 http://hdl.handle.net/10220/10121 10.1142/S0219525912500506 en Advances in complex systems © 2012 World Scientific Publishing Company. |
| spellingShingle | Qiu, G. Kandhai, D. Johnson, N. F. Sloot, Peter M. A. Understanding complex dynamics in derivatives finance : why do options markets smile? |
| title | Understanding complex dynamics in derivatives finance : why do options markets smile? |
| title_full | Understanding complex dynamics in derivatives finance : why do options markets smile? |
| title_fullStr | Understanding complex dynamics in derivatives finance : why do options markets smile? |
| title_full_unstemmed | Understanding complex dynamics in derivatives finance : why do options markets smile? |
| title_short | Understanding complex dynamics in derivatives finance : why do options markets smile? |
| title_sort | understanding complex dynamics in derivatives finance why do options markets smile |
| url | https://hdl.handle.net/10356/95862 http://hdl.handle.net/10220/10121 |
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