Cross-dependent volatility

Julien Guyon
17 Mar 2016

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The classical model for simultaneously calibrating stocks and index smiles is extremal within the class of CDV models, in the sense that the simplest volatility model calibrating to the N individual smiles is used, and the extra skewness of the index smile results purely from correlation.

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Here, we introduce another model, which is extremal in the opposite direction: the simplest correlation model (state-independent correlation) is imposed, and the extra skewness of the

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