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Regression-based Methods

In: Fitting Local Volatility Analytic and Numerical Approaches in Black-Scholes and Local Variance Gamma Models

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  • Andrey Itkin

Abstract

In this chapter we describe the second and, perhaps, the most popular approach to building the local volatility surface by regressions. Regression-based methods include both parametric and non-parametric fits. Usually, all these methods deal with construction of the implied volatility surface while the local volatility can be found afterwards by using Eq.(3.2) or any its flavor.

Suggested Citation

  • Andrey Itkin, 2020. "Regression-based Methods," World Scientific Book Chapters, in: Fitting Local Volatility Analytic and Numerical Approaches in Black-Scholes and Local Variance Gamma Models, chapter 4, pages 61-97, World Scientific Publishing Co. Pte. Ltd..
  • Handle: RePEc:wsi:wschap:9789811212772_0004
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    More about this item

    Keywords

    Local Volatility; Stochastic Clock; Geometric Process; Gamma Distribution; Piecewise Linear Volatility; Variance Gamma Process; Closed Form Solution; Fast Calibration; No-Arbitrage;
    All these keywords.

    JEL classification:

    • C6 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling
    • C02 - Mathematical and Quantitative Methods - - General - - - Mathematical Economics
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques

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