This is an example where the true distribution of future prices is bimodal (with the average between the modes). If all you can do is buy or sell stock, then you actually have to disagree with the market about the distribution to make money.
Without having information about the probability of default, there might still be something to do based on the vol curve.
This is an example where the true distribution of future prices is bimodal (with the average between the modes). If all you can do is buy or sell stock, then you actually have to disagree with the market about the distribution to make money.
Without having information about the probability of default, there might still be something to do based on the vol curve.