Local-stochastic volatility: models and non-models

Lorenzo Bergomi exposes a condition important to the use of LSV models in trading


Lorenzo Bergomi examines local-stochastic volatility models and derives a simple condition such models must obey so the carry profit and loss of a delta-hedged/vega-hedged position makes sense in a trading context. This article gives examples of admissible and non-admissible models and discusses the issue of the delta position in the hedge portfolio. It ends with a characterisation of the breakeven levels of the local volatility model, which is itself in the

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 info@risk.net or view our subscription options here: http://subscriptions.risk.net/subscribe

You are currently unable to copy this content. Please contact info@risk.net 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 Risk.net? View our subscription options

You need to sign in to use this feature. If you don’t have a Risk.net 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