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Non-traded call's volatility smiles

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  • Marek Capinski

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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  • Marek Capinski, 2019. "Non-traded call's volatility smiles," Papers 1903.07875, arXiv.org.
    • Handle: RePEc:arx:papers:1903.07875
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    References listed on IDEAS

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    1. Jonathan Wylie & Qiang Zhang & Tak Kuen Siu, 2010. "Can expected shortfall and Value-at-Risk be used to statically hedge options?," Quantitative Finance, Taylor & Francis Journals, vol. 10(6), pages 575-583.
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