This paper develops and tests a heterogeneous agents model for the option market. Our agents have different beliefs about the future level of volatility of the underlying stock index and trade accordingly. We consider two types of agents: fundamentalists and chartists, who are able to switch...

In this paper we investigate the importance of different loss functions when estimating and evaluating option pricing models. Our analysis shows that it is important to take into account parameter uncertainty, since this leads to uncertainty in the predicted option price. We illustrate the...

GARCH-type models have been very successful in describing the volatility dynamics of financial return series for short periods of time. However, for example macroeconomic events may cause the structure of volatility to change and the assumption of stationarity is no longer plausible. In order to...

This paper jointly analyzes traditional and behavioral concepts in a simple experimental setting which allows for the assessment of the relative importance of each factor and their joint behavior. Various hypotheses are tested in three portfolio choice models. Markowitz [Markowitz, H., 1952....

Barberis and Shleifer (2003) suggest that US investors classify assets into different styles based on, for example, market capitalization or B/M ratios. They find that prices can deviate substantially from fundamental values as a style's popularity changes over time. In this paper, we discuss...

Previous research suggests that the market for index-linked bonds is not entirely efficient and that these inefficiencies can be exploited by including inflation forecasts in trades on break-even inflation. Inspired by those results, we test the informational content of inflation expectations...

This paper presents a new empirical approach to address the problem of trading time differences between markets in studies of financial contagion. In contrast to end-of-business-day data common to most contagion studies, we employ price observations, which are exactly aligned in time to correct...