Statistical arbitrage done right

Rudra Jena gave a talk in the visitor seminar series yesterday about misspecified stochastic volatility models and their corresponding (statistical) arbitrage opportunities. This generalizes the famous work of El Karoui, Jeanblanc and Shreve for misspecified Black-Scholes models  and leads to several interesting conclusions. For example, Rudra showed that, in general, the popular Risk Reversal and Butterfly Spread strategies, commonly used by traders to benefit from perceived misspecification in the correlation between volatility and stock price and in the vol of vol, are not profit maximizing.