Danielsson, Jon 
ORCID: 0009-0006-9844-7960, Song Shin, Hyun and Zigrand, Jean-Pierre ORCID: 0000-0002-7784-4231
(2012)
Endogenous extreme events and the dual role of prices.
Annual Review of Economics, 4.
pp. 111-129.
ISSN 1941-1383
Abstract
Extreme events in financial markets are often generated by shocks that are generated within the system, rather than those that arrive from outside the system. The combination of risk-sensitive behavior rules and the coordinated actions implied by mark-to-market accounting can result in outcome distributions with fat tails, even if the fundamental shocks are Gaussian. We illustrate such "endogenous extreme events" through the pricing density resulting from dynamic hedging of options and the "flash crash" of May 2010.
| Item Type: | Article |
|---|---|
| Official URL: | http://www.annualreviews.org/loi/economics |
| Additional Information: | © 2012 Annual Reviews |
| Divisions: | Finance |
| Subjects: | H Social Sciences > HB Economic Theory H Social Sciences > HG Finance |
| JEL classification: | G - Financial Economics > G1 - General Financial Markets G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages G - Financial Economics > G3 - Corporate Finance and Governance > G32 - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure |
| Date Deposited: | 16 Apr 2012 15:33 |
| Last Modified: | 01 Oct 2024 03:38 |
| URI: | http://eprints.lse.ac.uk/id/eprint/43140 |
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