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That sounds like that I go back to the times before Black-Scholes...

anyone with new idea?

Thanks everyone. Here is my answer - straight forward derivation without risk-neutral measure http://ssrn.com/abstract=2397010

Many build algorithm trading only on MACD.

http://ssrn.com/abstract=2397010

The market consisting of only the OTC market - each option underwriter retails their options to clients by contract.

Any suggestion?:)

I know the real stock price distribution has thick tails, so traditional BS method may encounter unexpected loss and may cost a lot. I want to hedge an option as smooth and cheap as possible. After all, if I underwrite an option, my profit is premium revenue minus hedging cost. If I have to...

However someone told me that SV model is not complete, so forget about it and just stick to BS.

I have heard the rumor that option shall be hedged according to recent volatility. So I guess a SV model outperforms a BS?

I am in a very immature market where even vanilla options are in scarce. To simplify the question, just hedge an European Call on a stock, which is the best?

So basically I can only use Black-Scholes or CEV to hedge them?

Just suppose you have a time grid: t1-t0, t2-t1, t3-t2, ..., tn-tn-1 (tn=T) you want to generate a random motion W on it: W1-0, W2-W1, W3-W2, ..., Wn-Wn-1 (Wn=W) and you want the incremental W's to have the same independent distribution with expectation 0 and variance s*s So you get the total...

I guess you want to generate a random variable on normal or log-normal distribution through a simple random variable on uniform distribution. Let us just think it this way, you line up all your m classmates according to their height, from shortest to tallest. And then you get a quantile...

If you are reading Concepts and Practice of Mathematical Finance, reread 6.108 & 6.109 on page 169