1996/09/18 by Marc Potters, Rama Cont, Potters, Marc +4 · 1 citation
Economics, Econometrics and Finance · Physics and Astronomy · #Complex Systems and Time Series Analysis #cond-mat
paper · pdf · doi:10.48550/arxiv.cond-mat/9609172
Revised version, 1 figure added
arxiv created 1997/06/18 · arxiv updated 2009/11/30
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.