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Negative volatility and the Survival of Western Financial Markets

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  • Aase, Knut K.

    ()
    (Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration)

Abstract

The paper discusses situations where certain parameters are given values that are outside their natural ranges. One case is obtained when plugging in a negative value for the volatility parameter in the Black and Scholes formula. This leads to seemingly "new" results. A different setting is considered related to the developments in time of biological populations. Here deterministic models lead to chaotically fluctuating population sizes, which came as a surprise to workers with population data. It is argued that the origins for the seemingly new and original results may be related.

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Bibliographic Info

Paper provided by Department of Business and Management Science, Norwegian School of Economics in its series Discussion Papers with number 2004/5.

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Length: 8 pages
Date of creation: 17 Mar 2004
Date of revision:
Handle: RePEc:hhs:nhhfms:2004_005

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Postal: NHH, Department of Business and Management Science, Helleveien 30, N-5045 Bergen, Norway
Phone: +47 55 95 92 93
Fax: +47 55 95 96 50
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Web page: http://www.nhh.no/en/research-faculty/department-of-business-and-management-science.aspx
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Related research

Keywords: The Black and Scholes Model; negative volatility; population models; chaotic fluctuations; bifurcation;

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References

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  1. Knut K. Aase, 2002. "Equilibrium Pricing in the Presence of Cumulative Dividends Following a Diffusion," Mathematical Finance, Wiley Blackwell, vol. 12(3), pages 173-198.
  2. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-54, May-June.
  3. Robert C. Merton, 1973. "Theory of Rational Option Pricing," Bell Journal of Economics, The RAND Corporation, vol. 4(1), pages 141-183, Spring.
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