City Research Online

Real-world options: smile and residual risk

Bouchaud, J-P., Iori, G. and Sornette, D. (1995). Real-world options: smile and residual risk. Risk, 9(3), pp. 61-63.


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 Arts & Social Sciences > Economics
Date available in CRO: 12 Oct 2016 10:01
Date deposited: 29 July 2016
Date of first online publication: 1995
Text - Accepted Version
Download (123kB) | Preview



Downloads per month over past year

View more statistics

Actions (login required)

Admin Login Admin Login