Arbitrage hedging strategy and one more explanation of the volatility smile
Pricing of Securities
2011-03-01 v1 Analysis of PDEs
Abstract
We present an explicit hedging strategy, which enables to prove arbitrageness of market incorporating at least two assets depending on the same random factor. The implied Black-Scholes volatility, computed taking into account the form of the graph of the option price, related to our strategy, demonstrates the "skewness" inherent to the observational data.
Keywords
Cite
@article{arxiv.1102.5525,
title = {Arbitrage hedging strategy and one more explanation of the volatility smile},
author = {Mikhail Martynov and Olga Rozanova},
journal= {arXiv preprint arXiv:1102.5525},
year = {2011}
}
Comments
9 pages, 4 figures