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q-fin.PR2010
Do your volatility smiles take care of extreme events?
L. Spadafora, G. P. Berman, F. Borgonovi
In the Black-Scholes context we consider the probability distribution function (PDF) of financial returns implied by volatility smile and we study the relation between the decay of…
q-fin.PR2010
Adiabaticity Conditions for Volatility Smile in Black-Scholes Pricing Model
L. Spadafora, G. P. Berman, F. Borgonovi
Our derivation of the distribution function for future returns is based on the risk neutral approach which gives a functional dependence for the European call (put) option price, C…