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  • Opengamma Local Vol - 001

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    Raj
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    Local volatility models assume that volatility depends only on the current level of the underlying and time, rather than on the whole path of the underlying. They provide a simple and tractable way to calibrate to observed option prices without path dependence or stochastic volatility. Local volatility surfaces can be estimated by minimizing errors between observed and model-implied option prices.

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    Local volatility models assume that volatility depends only on the current level of the underlying and time, rather than on the whole path of the underlying. They provide a simple and tractable way to calibrate to observed option prices without path dependence or stochastic volatility. Local volatility surfaces can be estimated by minimizing errors between observed and model-implied option prices.

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    9 views1 page

    Opengamma Local Vol - 001

    Uploaded by

    Raj
    Local volatility models assume that volatility depends only on the current level of the underlying and time, rather than on the whole path of the underlying. They provide a simple and tractable way to calibrate to observed option prices without path dependence or stochastic volatility. Local volatility surfaces can be estimated by minimizing errors between observed and model-implied option prices.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
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    of 1

    OpenGamma Quantitative Research

    Local Volatility

    Richard White
    Richard@opengamma.com

    OpenGamma Quantitative Research n. 2 | First version: 27 January 2012; this version February 26, 2013

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