Negative volatility and the Survival of Western Financial Markets
AbstractThe 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 InfoPaper provided by Department of Finance and Management Science, Norwegian School of Economics in its series Discussion Papers with number 2004/5.
Length: 8 pages
Date of creation: 17 Mar 2004
Date of revision:
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Postal: NHH, Department of Finance and Management Science, Helleveien 30, N-5045 Bergen, Norway
Phone: +47 55 95 92 93
Fax: +47 55 95 96 50
Web page: http://www.nhh.no/for/
More information through EDIRC
The Black and Scholes Model; negative volatility; population models; chaotic fluctuations; bifurcation;
Find related papers by JEL classification:
- G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Robert C. Merton, 1973. "Theory of Rational Option Pricing," Bell Journal of Economics, The RAND Corporation, vol. 4(1), pages 141-183, Spring.
- 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.
- 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.
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