Beta-Dependent Gamma Feedback and Endogenous Volatility Amplification in Option Markets
Abstract
We develop a theoretical framework that aims to link micro-level option hedging and stock-specific factor exposure with macro-level market turbulence and explain endogenous volatility amplification during gamma-squeeze events. By explicitly modeling market-maker delta-neutral hedging and incorporating beta-dependent volatility normalization, we derive a stability condition that characterizes the onset of a gamma-squeeze event. The model captures a nonlinear recursive feedback loop between market-maker hedging and price movements and the resulting self-reinforcing dynamics. From a complex-systems perspective, the dynamics represent a bounded nonlinear response in which effective gain depends jointly on beta-normalized shock perception and gamma-scaled sensitivity. Our analysis highlights that low-beta stocks exhibit disproportionately strong feedback even for modest absolute price movements.
Keywords
Cite
@article{arxiv.2511.22766,
title = {Beta-Dependent Gamma Feedback and Endogenous Volatility Amplification in Option Markets},
author = {Haoying Dai},
journal= {arXiv preprint arXiv:2511.22766},
year = {2025}
}