Arbitrage hedging strategy and one more explanation of the volatility smile

Mikhail Martynov and Olga Rozanova

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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.

Date: 2011-02
New Economics Papers: this item is included in nep-fmk
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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:1102.5525

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