This paper presents new and significant research on the Black-Scholes Formula using the agent-based modeling software NetLogo. The software was used to simulate an options market subject to jump diffusion. Since the widely-used Black-Scholes Formula has at times proven unreliable, this research sought to understand circumstances that render the formula ineffective. It was hypothesized that markets would become difficult to trade in or “toxic” at low price volatility but high jump volatility. Further, it was predicted that kurtosis would alert the presence of toxic markets by accurately and consistently conveying whether jump diffusion was present.
Elliott, William D.
"Analyzing Options Market Toxicity and the Black-Scholes Formula in the Presence of Jump Diffusion as Simulated with Agent-Based Modeling,"
Undergraduate Economic Review:
1, Article 14.
Available at: http://digitalcommons.iwu.edu/uer/vol11/iss1/14