Yes, FairPUT costs the same like a classic PUT. But I doubt they can create arbitrage, but I'll check this further. Thx. But I repeat: only CALL and FairPUT, and the underlying, are allowed in the market, the standard PUT is banned.
@Atikon, as said: this is not intended for such exotic markets with negative prices, so let's forget that crappy argument. And I wonder what your Chi Square Distribution has todo with option pricing models. Do you see it mentioned in BSM? Nope! So let's forget that as well. What remains of your arguments? Nothing! Just explain how they would create arbitrage. I am anxious to hear
Show me the stock with a negative Spot In the meantime write the Admin to change your Acc. name into "Full Blown Dunning-Kruger"
Kevin points out exactly how your "FairPuts" could easily be arbitraged. If you sell a standard call and hedge one-to-one with long stock you synthetically create a short standard BSM put, which you are trying so hard to get rid of. By creating a short standard BSM put (by selling the BSM call against long stock 1 to 1), and then simultaneously buying your "FairPut" one could arbitrage the difference between the two. Since your "FairPuts" start out paying much more than standard BSM puts, the algos would within minutes arb this difference until your "FairPuts" paid out the same as a standard BSM put, which defeats the whole purpose of your invention.
I said I'll check that situation. It takes some time. Thx. Hmm. if that is indeed true, then it's a hard nut, I admit it... :-( But I need to check it first myself. Takes some time here.