SFB 303 Discussion Paper No. B - 426
Author: Abbink, Klaus, and Bettina Kuon
Title: An Options Pricing Experiment with Professional Traders
Abstract: This paper reports an option pricing experiment on the
binomial model, which has been conducted with professional
traders of financial assets. The experimental results are
compared to a corresponding experiment with students. The data
show that professional traders achieve lower arbitrage
exploitation as well as lower expected payoffs, as a
consequence of significantly lower probability sensitivity.
This phenomenon is explained by an adaptive process of
probability calibration, which is transferred from real
financial markets without explicit probability distributions.
Students without practical experience choose a more analytical
approach considering the given probabilities to a stronger
extent, which leads to higher performance.
Keywords: Option pricing, arbitrage, experiment, professional traders
JEL-Classification-Number: C91, G12, G14
Creation-Date: February 1998
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