As a major defense contractor, Northrop Grumman (NOC) is a well-known entity. Because of this fact, everything there is to know about the company — at least what is publicly and legally available — has already been absorbed. Stated differently, it’s unlikely to trade NOC stock based on an informational arbitrage; that is, the market not reflecting critical fundamental data into the NOC share price.
However, there could be a probabilistic arbitrage at play. Standard risk modeling such as Black-Scholes (for European options) or the Monte Carlo approach (which involves running multiple simulations) run into a potentially critical flaw: the assumption that pricing or volatility follows a log-normal distribution. This is a mathematical way of saying that the probability of a market event is assumed to be stationary or static.
