A common reasoning process is to rely on an informative starting point which is somewhat incorrect and then attempt to adjust it appropriately. Evidence suggests that underlying stock volatility is such a starting point, which is scaled-up to estimate call option volatility. I adjust...

Based on experimental evidence, I adjust the standard currency option pricing models for the anchoring heuristic of Tversky and Kahneman (1974). Anchoring provides an explanation for the market practice of using risk-reversals as sentiment proxy. While generating currency smiles even with...

Decision-makers typically rely on informative starting points that are somewhat incorrect and then attempt to make appropriate adjustments. Such reliance on informative starting points may be an optimal response of a Bayesian decision-maker who faces finite computational resources (Lieder et al...

A common reasoning process is to rely on an informative starting point which is somewhat incorrect and then attempt to adjust it appropriately. Evidence suggests that underlying stock volatility is such a starting point, which is scaled-up to estimate call option volatility. I adjust...

Decision-makers typically rely on informative starting points that are somewhat incorrect and then attempt to make appropriate adjustments. Such reliance on informative starting points may be an optimal response of a Bayesian decision-maker who faces finite computational resources (Lieder et al...

A common reasoning process is to rely on an informative starting point which is somewhat incorrect and then attempt to adjust it appropriately. Evidence suggests that underlying stock volatility is such a starting point, which is scaled-up to estimate call option volatility. I adjust...