Cutting Edge introduction: living la vida local

Living la vida local

At the start of 1994, Risk published Pricing with a smile by Bloomberg’s Bruno Dupire; it would go on to revolutionise option pricing. The problem at the time was that the Black-Scholes model assumed a constant volatility, but looking at option prices, volatility ought to vary with strike and maturity. Dupire’s insight was to show there is a unique function of time and spot, known as the local volatility, that fits a standard stochastic price model to market-implied volatilities – and work out

Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.

To access these options, along with all other subscription benefits, please contact or view our subscription options here:

You are currently unable to copy this content. Please contact to find out more.

Sorry, our subscription options are not loading right now

Please try again later. Get in touch with our customer services team if this issue persists.

New to View our subscription options

You need to sign in to use this feature. If you don’t have a account, please register for a trial.

Sign in
You are currently on corporate access.

To use this feature you will need an individual account. If you have one already please sign in.

Sign in.

Alternatively you can request an individual account here