ANALYSIS OF AN OPTION MARKET DYNAMICS BASED ON A HETEROGENEOUS AGENT MODEL

We propose a two‐market model in which an option market and its underlying market interact. Many artificial markets representing stock markets have been developed, and these models have been actively used to investigate the effects of market rules. However, no artificial market model for derivatives has been intensively studied, even though derivative markets are increasingly important. We tested stylized facts that can be observed in an option market and our model can replicate fat‐tailed distributions, positive skew of the return and positive autocorrelation of the square of return of implied volatility. We found that the speed of volatility mean reversion for fundamentalists and the existence of chartists are important factors for replicating the positive skew of an option market. The value of fat‐tailed distributions and positive skewness of the return get closer to the real value by coupling an option market and an underlying market. Copyright © 2014 John Wiley & Sons, Ltd.