Non-traded call's volatility smiles
Pricing of Securities
2019-03-20 v1
Abstract
Real life hedging in the Black-Scholes model must be imperfect and if the stock's drift is higher than the risk free rate, leads to a profit on average. Hence the option price is examined as a fair game agreement between the parties, based on expected payoffs and a simple measure of risk. The resulting prices result in the volatility smile.
Keywords
Cite
@article{arxiv.1903.07875,
title = {Non-traded call's volatility smiles},
author = {Marek Capinski},
journal= {arXiv preprint arXiv:1903.07875},
year = {2019}
}