Self-Organized Critical Markets: Implied Volatility and Avalanche Intensity

Romain Bocher ()
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Romain Bocher: Département d'addictologie et de psychiatrie de liaison [CHU de Nantes] - CHU Nantes - Centre Hospitalier Universitaire de Nantes = Nantes University Hospital

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Abstract: Assuming self-organized criticality to characterize capital markets, this paper seeks to explain why equity implied volatility is a relevant proxy for avalanche intensity. Historical data analysis of the CBOE Volatility Index (VIX) shows that implied volatility spikes are distributed following a power law, making financial stress similar to earthquakes as anticipated long ago by Bak.

Keywords: Implied Volatility; Power Law; Self-Organized Criticality (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-hme and nep-rmg
Note: View the original document on HAL open archive server: https://hal.science/hal-03352468
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Citations: View citations in EconPapers (3)

Published in Hyperion International Journal of Econophysics & New Economy, 2020, 13 (2), pp.45-50

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-03352468

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