Arbitrage hedging strategy and one more explanation of the volatility smile
classification
💱 q-fin.PR
math.AP
keywords
strategyhedgingvolatilityaccountarbitragearbitragenessassetsblack-scholes
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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.
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