Local volatility from American options

De Marco and Henry-Labordère provide an approximation of American options in terms of the local volatility function


Stefano De Marco and Pierre Henry-Labordère focus on short-time asymptotics for American options in the case of local and stochastic volatility models. As a by-product, they obtain an efficient algorithm for calibrating Dupire’s local volatility to American options, starting from an arbitrage-free parameterisation of a European-implied volatility

Calibration of the local volatility model on (European) vanillas can be efficiently achieved using Dupire’s formula, which

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