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Arbitrage hedging strategy and one more explanation of the volatility smile (1102.5525v1)
Published 27 Feb 2011 in q-fin.PR and math.AP
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.