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Department of Business and Management Science, Norwegian School of Economics (NHH) Discussion Papers, Department of Business and Management Science, Norwegian School of Economics (NHH)

No 2004/5:
Negative volatility and the Survival of Western Financial Markets

Knut K. Aase ()

Abstract: The paper discusses situations where certain parameters are given values that are outside their natural ranges. One case is obtained when plugging in a negative value for the volatility parameter in the Black and Scholes formula. This leads to seemingly "new" results.

A different setting is considered related to the developments in time of biological populations. Here deterministic models lead to chaotically fluctuating population sizes, which came as a surprise to workers with population data.

It is argued that the origins for the seemingly new and original results may be related.

Keywords: The Black and Scholes Model; negative volatility; population models; chaotic fluctuations; bifurcation; (follow links to similar papers)

JEL-Codes: G10; (follow links to similar papers)

8 pages, March 17, 2004

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