Economics and Finance


Self-Organized Critical Markets - Implied Volatility and Avalanche Intensity

Authors: Romain Bocher

Assuming self-organized criticality to characterize capital markets, this paper seeks to explain why equity implied volatility is a relevant proxy for avalanche intensity. Historical data analysis of the CBOE Volatility Index (VIX) shows that implied volatility spikes are distributed following a power law, making financial stress similar to earthquakes as anticipated long ago by Bak.

Comments: 7 Pages.

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Submission history

[v1] 2019-12-30 07:47:09
[v2] 2020-01-03 06:50:46
[v3] 2020-01-06 05:08:54

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