Dr. Siddiqi Presents Research at Global Finance Conference
Dr. Hammad Siddiqi, Faculty, Department of Economics, School of Humanities, Social Sciences, and Law (SHSSL) presented his paper titled, “Thinking by Analogy, Systematic Risk, and Option Prices” at the Global Finance Association meeting held in Chicago from May 23 to 25, 2012.
The Global Finance Association holds a meeting every year and this was their 19th meeting. The theme of this year’s conference was “Financial Crises, Systemic Risk, and the Future of Capitalism”. A large number of eminent academics and practitioners participated in the conference.
Dr. Siddiqi based his research on the fact that often, people tend to think by analogies and comparisons instead of the hypothetical rational model often assumed in economics and finance theory. Dr. Siddiqi’s research derived a new option pricing formula which explicitly takes into account the presence of people prone to thinking by analogy. The new formula is a generalisation of the famous Black Scholes formula, the discoverers of which were awarded the Nobel Prize in Economics in 1997. The new option pricing formula solves a well known problem with the Black Scholes formula. Specifically, it provides an explanation for the various implied volatility puzzles observed in financial markets.