Black-Scholes Model is Right, Option Market is Inefficient: A Robust Proof

This paper proves that the Black-Scholes model is not vulnerable to its assumption on the underlying process, because the same fundamental PDE can be derived by the possibility of continuously rebalancing a delta-gamma-neutral position, without assuming anything about the underlying process. Since the variance function of the PDE should be interpreted as the market price of convexity, it is not necessarily equal to the true variance function of the underlying process. In addition, since the delta-gamma-neutral strategy will earn definitively riskless arbitrage profits from the observed option prices that exhibit volatility smile, smirk, or term structure, it is conclusive that the Black-Scholes model is right, and the option market is inefficient.