The effect of non-ideal market conditions on option pricing
arXiv:cond-mat/0112033 · doi:10.1016/S0378-4371(02)00627-1
Abstract
Option pricing is mainly based on ideal market conditions which are well represented by the Geometric Brownian Motion (GBM) as market model. We study the effect of non-ideal market conditions on the price of the option. We focus our attention on two crucial aspects appearing in real markets: The influence of heavy tails and the effect of colored noise. We will see that both effects have opposite consequences on option pricing.
26 pages and 8 colored figures. Invited Talk in "Horizons in complex systems", Messina, 5-8 December 2001. To appear in Physica-A