Behavioral heterogeneity in the option market

Bart Frijns, Thorsten Lehnert and Remco Zwinkels ()

Journal of Economic Dynamics and Control, 2010, vol. 34, issue 11, 2273-2287

Abstract: This paper develops and tests a heterogeneous agents model for the option market. Our agents have different beliefs about the future level of volatility of the underlying stock index and trade accordingly. We consider two types of agents: fundamentalists and chartists, who are able to switch between groups according to a multinomial logit switching rule. The model simplifies to a GARCH-type specification with time-varying parameters. Estimation results for DAX30 index options reveal that different types of traders are actively involved in trading volatility. Our model improves frequently used standard GARCH-type models in terms of pricing performance.

Keywords: Heterogeneous; agents; Option; markets; Fundamentalists; Chartists; GARCH (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (61)

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Working Paper: Behavioral heterogeneity in the option market (2010)
Working Paper: Behavioral Heterogeneity in the Option Market (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:34:y:2010:i:11:p:2273-2287

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