English

Financial markets as adaptative ecosystems

Condensed Matter 2008-02-03 v2

Abstract

We show, by studying in detail the market prices of options on liquid markets, that the market has empirically corrected the simple, but inadequate Black-Scholes formula to account for two important statistical features of asset fluctuations: `fat tails' and correlations in the scale of fluctuations. These aspects, although not included in the pricing models, are very precisely reflected in the price fixed by the market as a whole. Financial markets thus behave as rather efficient adaptive systems.

Keywords

Cite

@article{arxiv.cond-mat/9609172,
  title  = {Financial markets as adaptative ecosystems},
  author = {Marc Potters and Rama Cont and Jean-Philippe Bouchaud},
  journal= {arXiv preprint arXiv:cond-mat/9609172},
  year   = {2008}
}

Comments

Revised version, 1 figure added

R2 v1 2026-07-22T11:54:37.792Z