An Options Pricing Experiment with Professional Traders
AbstractThis paper reports an option pricing experiment on the binomial model, which has been conducted with professional traders of financial assets. The experimental results are compared to a corresponding experiment with students. The data show that professional traders achieve lower arbitrage exploitation as well as lower expected payoffs, as a consequence of significantly lower probability sensitivity. This phenomenon is explained by an adaptive process of probability calibration, which is transferred from real financial markets without explicit probability distributions. Students without practical experience choose a more analytical approach considering the given probabilities to a stronger extent, which leads to higher performance.
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Bibliographic InfoPaper provided by University of Bonn, Germany in its series Discussion Paper Serie B with number 426.
Date of creation:
Date of revision: Feb 1998
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Postal: Bonn Graduate School of Economics, University of Bonn, Adenauerallee 24 - 26, 53113 Bonn, Germany
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Option pricing; arbitrage; experiment; professional traders;
Find related papers by JEL classification:
- C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
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