TY - JOUR
T1 - Dynamics of a binary option market with exogenous information and price sensitivity
AU - Gampe, Hannah
AU - Griffin, Christopher
N1 - Publisher Copyright:
© 2022 Elsevier B.V.
PY - 2023/4
Y1 - 2023/4
N2 - In this paper, we derive and analyze a continuous binary option market with exogenous information. The resulting non-linear system has a discontinuous right hand side, which can be analyzed using zero-dimensional Filippov surfaces. Under general assumptions on purchasing rules, we show that when exogenous information is constant in the binary asset market, the price always converges. We then investigate market prices in the case of changing information, showing empirically that price sensitivity has a strong effect on price lag vs. information. We conclude with open questions on general M-ary option markets.
AB - In this paper, we derive and analyze a continuous binary option market with exogenous information. The resulting non-linear system has a discontinuous right hand side, which can be analyzed using zero-dimensional Filippov surfaces. Under general assumptions on purchasing rules, we show that when exogenous information is constant in the binary asset market, the price always converges. We then investigate market prices in the case of changing information, showing empirically that price sensitivity has a strong effect on price lag vs. information. We conclude with open questions on general M-ary option markets.
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U2 - 10.1016/j.cnsns.2022.106994
DO - 10.1016/j.cnsns.2022.106994
M3 - Article
AN - SCOPUS:85146050023
SN - 1007-5704
VL - 118
JO - Communications in Nonlinear Science and Numerical Simulation
JF - Communications in Nonlinear Science and Numerical Simulation
M1 - 106994
ER -