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Does Coarse Thinking Matter for Option Pricing? Evidence from an Experiment

Siddiqi, Hammad - Volkswirtschaftliche Fakultät, … - 2009

Mullainathan et al [Quarterly Journal of Economics, May 2008] present a model of coarse thinking or analogy based thinking. The essential idea behind coarse thinking is that people put situations into categories and the values assigned to attributes in a given situation are affected by the...

Persistent link: https://www.econbiz.de/10005619287

Explaining the Smile in Currency Options: Is it Anchoring?

Siddiqi, Hammad - Volkswirtschaftliche Fakultät, … - 2015

An anchoring adjusted currency option pricing formula is developed in which the risk of the underlying currency is used as a starting point which gets adjusted upwards to arrive at the currency call risk. Anchoring bias implies that such adjustments are insufficient. The new formula converges to...

Persistent link: https://www.econbiz.de/10011250911

Forgive, or Award, Your Debtor? - A Barrier Option Approach

Sun, David; Chow, Da-Ching - Volkswirtschaftliche Fakultät, … - 2014

We introduced in this study a model of sovereign debt with an embedded Down-and-In Put (DIP) to capture the discontinuity in sovereign debt pricing. This study suggests that debt forgiveness is a more effective solution in debt crisis, as repayment bonus or award or capital market exclusion...

Persistent link: https://www.econbiz.de/10011260952

Rational Interacting Agents and Volatility Clustering: A New Approach

Siddiqi, Hammad - Volkswirtschaftliche Fakultät, … - 2007

Here, we show that agents who are ex ante rational, if allowed to interact locally, may generate clustering of volatility. Hence, there is no need to reject the notion of rationality in agent based models.

Persistent link: https://www.econbiz.de/10005260132

Does trading remove or bring frictions?

Lin, William; Sun, David; Tsai, Shih-Chuan - Volkswirtschaftliche Fakultät, … - 2010

We explore in this paper how trading noise, when considered as a market friction, reacts to trading activity. Transactions cost is a good explanation for intraday trading behavior in the market according to our data. Particularly, we show that in general trading brings friction to market....

Persistent link: https://www.econbiz.de/10009654205

Liquidity-adjusted benchmark yield curves: a look at trading concentration and information

Lin, William; Sun, David - Volkswirtschaftliche Fakultät, … - 2007

phenomenon arising from horizon-induced clientele equilibrium as well as information discovery. Specifically, we employ arguments … from models of liquidity concentration and benchmark security information. After examining time series behavior of price … errors against our fitted model, we find results consistent with both the horizon and information hypotheses. Our evidence …

Persistent link: https://www.econbiz.de/10009654213

Price informativeness and predictability: how liquidity can help

Lin, William; Tsai, Shih-Chuan; Sun, David - Volkswirtschaftliche Fakultät, … - 2008

Information asymmetry and liquidity concentration has been widely discussed in literatures. This study shows how … liquidity influences not only forecasting performances of term structure estimation, but also information transmission and price … enhanced when conditioning on trading liquidity. It reduces information asymmetry in the sense of Easley and O’Hara (2004) and …

Persistent link: https://www.econbiz.de/10009654214

Search costs and investor trading activity: evidences from limit order book

Lin, William; Tsai, Shih-Chuan; Sun, David - Volkswirtschaftliche Fakultät, … - 2010

We analyze in this study investor trading behavior based not on information related assumptions but on the search model …

Persistent link: https://www.econbiz.de/10009654221

Behavioral investment strategy matters: a statistical arbitrage approach

Sun, David; Tsai, Shih-Chuan; Wang, Wei - Volkswirtschaftliche Fakultät, … - 2011

In this study, we employ a statistical arbitrage approach to demonstrate that momentum investment strategy tend to work better in periods longer than six months, a result different from findings in past literature. Compared with standard parametric tests, the statistical arbitrage method...

Persistent link: https://www.econbiz.de/10009654225

What Causes Herding:Information Cascade or Search Cost ?

Lin, William; Tsai, Shih-Chuan; Sun, David - Volkswirtschaftliche Fakultät, … - 2009

We analyze in this study what could have caused herding in the stock market. Information cascades have often been … prediction of the information cascade hypothesis. Information cascade effect, if any, is actually stronger near market close than … rather than information related factors. …

Persistent link: https://www.econbiz.de/10008592948