Journal article
Does coarse thinking matter for option pricing? Evidence from an experiment
IUP Journal of Behavioral Finance, Vol.8(2), pp.58-69
2011
Abstract
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 values of corresponding attributes in other co-categorized situations. We test this hypothesis in an experiment on financial options against the benchmark of arbitrage-free pricing. Firstly, we test whether a financial option is priced in analogy with its underlying stock (transference). Secondly, we test for whether variations in the analogy between a financial option and its underlying stock matter (framing). We find evidence in support of both transference and framing.
Details
- Title
- Does coarse thinking matter for option pricing? Evidence from an experiment
- Authors
- Hammad Siddiqi (Author) - Lahore University of Management Sciences, Pakistan
- Publication details
- IUP Journal of Behavioral Finance, Vol.8(2), pp.58-69
- Publisher
- I U P Publications
- Date published
- 2011
- Organisation Unit
- School of Business and Creative Industries; University of the Sunshine Coast, Queensland; USC Business School - Legacy
- Language
- English
- Record Identifier
- 99450999802621
- Output Type
- Journal article
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