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Non-traded call's volatility smiles
Published 19 Mar 2019 in q-fin.PR | (1903.07875v1)
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.
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