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Option Bounds and the Pricing of the Volatility Smile

✍ Scribed by Jean Masson; Stylianos Perrakis


Book ID
110277342
Publisher
Springer US
Year
2000
Tongue
English
Weight
204 KB
Volume
4
Category
Article
ISSN
1380-6645

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## Abstract This article shows that the volatility smile is not necessarily inconsistent with the Black–Scholes analysis. Specifically, when transaction costs are present, the absence of arbitrage opportunities does not dictate that there exists a unique price for an option. Rather, there exists a