Simulation of the impact of dynamic hedging for underlying market using multi agent model

Abstract

The effect of option markets on their underlying market has been studied intensively since the first option contract was listed. Despite considerable effort including theoretical and empirical approaches, we still don't have a conclusive view toward that problem. We look the effect of option market, especially the effect of dynamic hedging, on underlying market by using artificial market. We proposed two market model in which option market and underlying market interacts. In this study, we could confim that dynamic heding increase or decrease the volatiliy of underlying market under some conditions.