Volatility, Trading, Derivatives Market, Quantitative Finance, Finance.
assume the following payout function: f(x) = max(x-k,0) where k=strike price Now, we can calculate both E[f(x)] and f[E(x)] and see if the inequality holds: Well, we can obviously see that the average payout for a call option is greater than the payout of the average outcome at maturity; hence, it