Fat tails and colored noise in financial derivatives

Josep Perelló and Jaume Masoliver

Physica A: Statistical Mechanics and its Applications, 2002, vol. 314, issue 1, 736-742

Abstract: We study the effect of heavy tails and correlations on the price of the one of the simplest financial derivative: the European call option. We see that both effects have opposite and nontrivial consequences on the price of the derivatives.

Keywords: Martingale option pricing method; Heavy tails; Correlated stocks (search for similar items in EconPapers)
Date: 2002
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:314:y:2002:i:1:p:736-742

DOI: 10.1016/S0378-4371(02)01151-2

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