Please use this identifier to cite or link to this item: https://hdl.handle.net/10356/95862
Title: Understanding complex dynamics in derivatives finance : why do options markets smile?
Authors: Qiu, G.
Kandhai, D.
Johnson, N. F.
Sloot, Peter M. A.
Issue Date: 2012
Source: 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).
Series/Report no.: Advances in complex systems
Abstract: 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.
URI: https://hdl.handle.net/10356/95862
http://hdl.handle.net/10220/10121
DOI: 10.1142/S0219525912500506
Rights: © 2012 World Scientific Publishing Company.
Fulltext Permission: none
Fulltext Availability: No Fulltext
Appears in Collections:SCSE Journal Articles

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