SFB 303 Discussion Paper No. B - 376

Author: Abbink, Klaus and Bettina Kuon
Title: An Experimental Investigation of the Option Pricing Approach
Abstract: The Paper reports a basic Experiment on the option pricing approach. Each trader with an increasing utility for money values the option with his arbitrage free price, which is independent of the probability of the stock movement. The experimental data show that the traiders learn to exploit more arbitrage as they gain experience, however, they value the option by aprobability dependent price. This price can best be described by the discounted expected payoff of the option, damped for high probability values. Nevertheless, there are hints for learning towards the arbitrage free price, driven by the expected payoff maximization.
Keywords: Experiment, Option Pricing, Arbitrage, Bounded Rationality
JEL-Classification-Number: C91, G12, G14
Creation-Date: July 1996
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