Bouchaud, J-P., Iori, G. & Sornette, D. (1995). Real-world options: smile and residual risk. Risk, 9(3), pp. 61-63.
Abstract
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.
| Publication Type: | Article |
|---|---|
| Subjects: | H Social Sciences > HD Industries. Land use. Labor > HD61 Risk Management |
| Departments: | School of Policy & Global Affairs > Economics |
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