Real-world options: smile and residual risk

We present a theory of option pricing and hedging, designed to address non-perfect arbitrage, market friction and the presence of `fat' tails. An implied volatility `smile' is predicted. We give precise estimates of the residual risk associated with optimal (but imperfect) hedging.

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Year of publication:	1995-09
Authors:	Bouchaud, Jean-Philippe ; Iori, Giulia ; Sornette, Didier
Institutions:	Science & Finance

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Series:	Science & Finance (CFM) working paper archive.
Type of publication:	Book / Working Paper
Notes:	Published in Risk Magazine 9 (3), 61-65, (March 1996) Number 500039
Classification:	G10 - General Financial Markets. General
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10005129576