The talk will be in two parts. In both, we split up the market (of 2 assets, one risky and one risk-free) into 2 groups - reference traders and another group of traders. In the first part, we consider that other group to be portfolio optimisers, who act so as to optimise their expected utility. In the second part, we look at option hedgers, particularly hedgers of straddles. We then consider the dynamics of the underlying asset that is being traded. We find that portfolio optimisers tend to decrease the volatility of the underlying asset, while hedgers of straddles have differing effects that depend on whether they are net long or net short the straddle. We perform a numerical simulation to show the resulting terminal distributions of the underlying asset and demonstrate the phenomenon known as pinning.

Part of this is joint work with George Papanicolaou. Work conducted while the presenter was a PhD student at Stanford University.

Please feel free to bring this to the attention of interested colleagues.