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On nonexistence of non-constant volatility in the Black-Scholes formula

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  • K. Hamza
  • F. C. Klebaner

Abstract

We prove that if the Black-Scholes formula holds with the spot volatility for call options with all strikes, then the volatility parameter is constant. The proof relies some result on semimartingales (Theorem 2) of independent interest.

Suggested Citation

  • K. Hamza & F. C. Klebaner, 2005. "On nonexistence of non-constant volatility in the Black-Scholes formula," Papers math/0502201, arXiv.org.
  • Handle: RePEc:arx:papers:math/0502201
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    File URL: http://arxiv.org/pdf/math/0502201
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    References listed on IDEAS

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    1. Stein, Elias M & Stein, Jeremy C, 1991. "Stock Price Distributions with Stochastic Volatility: An Analytic Approach," Review of Financial Studies, Society for Financial Studies, vol. 4(4), pages 727-752.
    2. Schönbucher, Philpp J., "undated". "A Market Model for Stochastic Implied Volatility," Discussion Paper Serie B 453, University of Bonn, Germany, revised May 1999.
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