Local volatility models
Sponsored statement: Ito33
Original headline:
Source: Risk magazine
Local volatility was, for a long time, seen as being a universal panacea. However, cracks appeared and we have been forced to look elsewhere for a new framework. Philippe Henrotte, co-founder, partner...
Published online only
Source: Structured Products
Index providers and fund managers who have tended to focus on performance are seeing demand from investors for strategy indexes that focus on risk
Original headline:
Source: Risk magazine
The markets classically assumed by quantitative finance trade continuously, are frictionless, infinitely deep and liquid, and often normally distributed – a fiction so enchanting that many modellers...
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More Local volatility models articles
Being particular about calibration
Original headline:
Source: Risk magazine
Following previous work on the calibration of multi-factor local stochastic volatility models to market smiles, Julien Guyon and Pierre Henry-Labordère show how to calibrate exactly any such model. Their approach, based on McKean’s particle method,...
Filling the gaps
Original headline:
Source: Risk magazine
Calibrating a local volatility model to options prices is a complicated process requiring both interpolation of liquid prices and extrapolation beyond them. Recently focus has turned to efficient numerical methods. Here, Alex Lipton and Artur Sepp show...
From spot volatilities to implied volatilities
Original headline:
Source: Asia Risk
Since the pioneering work of Dupire, the local volatility function can be derived from the implied volatility surface. Calculating implied volatilities from local volatilities is classically done by numerically solving the forward equation for call prices....
BAML's Lipton: discrete models essential to cut CVA computation costs...
Published online only
Source: Risk magazine
Top quant says a CVA model that is 80% accurate but takes 20% of the time is "very attractive"
From spot volatilities to implied volatilities
Original headline:
Source: Risk magazine
Since the pioneering work of Dupire, the local volatility function can be derived from the implied volatility surface. Calculating implied volatilities from local volatilities is classically done by numerically solving the forward equation for call prices....
Volatility interpolation
Original headline:
Source: Risk magazine
Developing an arbitrage-free, consistent volatility surface in both expiry and strike from a discrete set of option quotes is a difficult and computationally intense problem. In this article, Jesper Andreasen and Brian Huge use a non-standard variant...
Smiling jumps
Original headline:
Source: Asia Risk
Local jump intensity models, in which the volatility of a Lévy process is made spot-dependent, are difficult to parameterise and calculate. However, they are an important ingredient of credit barrier models, in which the firm value is modelled as a geometric...
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