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