Ontology highlight
ABSTRACT:
SUBMITTER: Vaidya T
PROVIDER: S-EPMC7657902 | biostudies-literature | 2020 Oct
REPOSITORIES: biostudies-literature
Vaidya Tushar T Murguia Carlos C Piliouras Georgios G
Royal Society open science 20201021 10
Black-Scholes (BS) is a remarkable quotation model for European option pricing in financial markets. Option prices are calculated using an analytical formula whose main inputs are strike (at which price to exercise) and volatility. The BS framework assumes that volatility remains constant across all strikes; however, in practice, it varies. How do traders come to learn these parameters? We introduce natural agent-based models, in which traders update their beliefs about the true implied volatili ...[more]