A new fast local volatility model

A local volatility model based on the Bass construction and alternative to Dupire-style models is introduced

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Antoine Conze and Pierre Henry-Labordère construct a new local volatility model, based on an extension of the Bass construction that is perfectly calibrated to vanilla options on market expiries and that is also a one-factor diffusion which can be discretised exactly, as it requires only the simulation of a standard Brownian motion, to provide very fast calculations. This paper is dedicated to the memory of Peter Carr

Let us consider a horizon T, the non-negative

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