Scandinavian Working Papers in Economics
Discussion Papers,
Norwegian School of Economics, Department of Business and Management Science
No 2004/5: Negative volatility and the Survival of Western Financial Markets
Knut K. Aase ()
Additional contact information
Knut K. Aase: Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration, Postal: NHH , Department of Finance and Management Science, Helleveien 30, N-5045 Bergen, Norway
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
JEL-codes: G10
8 pages, March 17, 2004
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