2019/03/19 by Marek Capiński, Capinski, Marek
Economics, Econometrics and Finance · #91G20 #FOS: Economics and business #Pricing of Securities (q-fin.PR) #Stochastic processes and financial applications
paper · pdf · doi:10.48550/arxiv.1903.07875
openalex publication_date 2019/03/19 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/28
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.