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| Main Author: | |
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| Format: | Preprint |
| Published: |
2025
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| Subjects: | |
| Online Access: | https://arxiv.org/abs/2511.22766 |
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| _version_ | 1866915643052261376 |
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| author | Dai, Haoying |
| author_facet | Dai, Haoying |
| contents | We develop a theoretical framework that aims to link micro-level option hedging and stock-specific factor exposure with macro-level market turbulence and explain endogenous volatility amplification during gamma-squeeze events. By explicitly modeling market-maker delta-neutral hedging and incorporating beta-dependent volatility normalization, we derive a stability condition that characterizes the onset of a gamma-squeeze event. The model captures a nonlinear recursive feedback loop between market-maker hedging and price movements and the resulting self-reinforcing dynamics. From a complex-systems perspective, the dynamics represent a bounded nonlinear response in which effective gain depends jointly on beta-normalized shock perception and gamma-scaled sensitivity. Our analysis highlights that low-beta stocks exhibit disproportionately strong feedback even for modest absolute price movements. |
| format | Preprint |
| id |
arxiv_https___arxiv_org_abs_2511_22766 |
| institution | arXiv |
| publishDate | 2025 |
| record_format | arxiv |
| spellingShingle | Beta-Dependent Gamma Feedback and Endogenous Volatility Amplification in Option Markets Dai, Haoying Trading and Market Microstructure Chaotic Dynamics We develop a theoretical framework that aims to link micro-level option hedging and stock-specific factor exposure with macro-level market turbulence and explain endogenous volatility amplification during gamma-squeeze events. By explicitly modeling market-maker delta-neutral hedging and incorporating beta-dependent volatility normalization, we derive a stability condition that characterizes the onset of a gamma-squeeze event. The model captures a nonlinear recursive feedback loop between market-maker hedging and price movements and the resulting self-reinforcing dynamics. From a complex-systems perspective, the dynamics represent a bounded nonlinear response in which effective gain depends jointly on beta-normalized shock perception and gamma-scaled sensitivity. Our analysis highlights that low-beta stocks exhibit disproportionately strong feedback even for modest absolute price movements. |
| title | Beta-Dependent Gamma Feedback and Endogenous Volatility Amplification in Option Markets |
| topic | Trading and Market Microstructure Chaotic Dynamics |
| url | https://arxiv.org/abs/2511.22766 |