Option Pricing by Students and Professional Traders: A Behavioural Investigation
We compare the behaviour of students and professional traders from an influential German bank in an experiment involving financial options. The arbitrage free option price is independent of the probability distribution of the underlying asset. The experimental data uncover a probability dependent option valuation of the students, however, they learn to exploit more arbitrage as they gain experience. The professional traders exhibit a less probability sensitive valuation, but their overall performance is lower than the students’. We offer the explanation that the professional traders choose a more intuitive and less analytic pattern of behaviour than the students, despite their superior knowledge in financial market theory and practice. At real financial markets, traders are typically not confronted with given and known exact probability distributions, but they must rather rely on their intuitive calibration of the prospects.
To our knowledge, this item is not available for
download. To find whether it is available, there are three
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
|Date of creation:||Jul 2005|
|Date of revision:|
|Publication status:||Forthcoming in Managerial and Decision Economics|
|Contact details of provider:|| Postal: University Park, Nottingham NG7 2RD|
Phone: +44 (0) 115 951 5620
Fax: +44 (0) 115 951 4159
Web page: http://www.nottingham.ac.uk/economics/cedex/
More information through EDIRC
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.:
- Banks, Jeffrey & Camerer, Colin & Porter, David., 1990.
"An Experimental Analysis of Nash Refinements in Signaling Games,"
740, California Institute of Technology, Division of the Humanities and Social Sciences.
- Banks Jeffrey & Camerer Colin & Porter David, 1994. "An Experimental Analysis of Nash Refinements in Signaling Games," Games and Economic Behavior, Elsevier, vol. 6(1), pages 1-31, January.
- Abbink, Klaus & Abdolkarim Sadrieh, 1995. "RatImage - research Assistance Toolbox for Computer-Aided Human Behavior Experiments," Discussion Paper Serie B 325, University of Bonn, Germany.
- Forsythe, Robert & Palfrey, Thomas R & Plott, Charles R, 1984. " Futures Markets and Informational Efficiency: A Laboratory Examination," Journal of Finance, American Finance Association, vol. 39(4), pages 955-81, September.
- Dejong, Douglas V. & Forsythe, Robert & Uecker, Wilfred C., 1988.
"A note on the use of businessmen as subjects in sealed offer markets,"
Journal of Economic Behavior & Organization,
Elsevier, vol. 9(1), pages 87-100, January.
- Douglas DeJong & Robert Forsythe & Wilfred Uecker, 1988. "A note on the use of businessmen as subjects in sealed offer markets," Artefactual Field Experiments 00039, The Field Experiments Website.
- C. Bram Cadsby & Elizabeth Maynes, 1998. "Laboratory experiments in corporate and investment finance: a survey," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 19(4-5), pages 277-298.
- Dyer, Douglas & Kagel, John H & Levin, Dan, 1989.
"A Comparison of Naive and Experienced Bidders in Common Value Offer Auctions: A Laboratory Analysis,"
Royal Economic Society, vol. 99(394), pages 108-15, March.
- Dyer, D. & Kagel, J.H. & Levin, D., 1988. "A Comparison Of Naive And Experienced Bidders In Common Value Offer Auctions A Laboratory Analysis," Papers 11, Houston - Department of Economics.
When requesting a correction, please mention this item's handle: RePEc:cdx:dpaper:2005-12. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Alex Possajennikov)
If references are entirely missing, you can add them using this form.