Financial markets as adaptative systems

Marc Potters (), Rama Cont and Jean-Philippe Bouchaud
Additional contact information
Rama Cont: Science & Finance, Capital Fund Management
Jean-Philippe Bouchaud: Science & Finance, Capital Fund Management

No 500037, Science & Finance (CFM) working paper archive from Science & Finance, Capital Fund Management

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.

JEL-codes: G10 (search for similar items in EconPapers)
Date: 1996-09
New Economics Papers: this item is included in nep-fin, nep-fmk and nep-hpe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

Published in Europhysics Letters 41, 239 (1998)

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:sfi:sfiwpa:500037

Access Statistics for this paper

More papers in Science & Finance (CFM) working paper archive from Science & Finance, Capital Fund Management 6 boulevard Haussmann, 75009 Paris, FRANCE. Contact information at EDIRC.
Bibliographic data for series maintained by ().