Behavioral Heterogeneity in the Option Market

Thorsten Lehnert, Bart Frijns and Remco Zwinkels ()

LSF Research Working Paper Series from Luxembourg School of Finance, University of Luxembourg

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)
JEL-codes: C15 G12 (search for similar items in EconPapers)
Date: 2009
New Economics Papers: this item is included in nep-fmk
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Behavioral heterogeneity in the option market (2010)
Working Paper: Behavioral heterogeneity in the option market (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:crf:wpaper:09-07

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