The Exact Smile of some Local Volatility Models
AbstractWe introduce a new class of local volatility models. Within this framework, we obtain expressions for both (i) the price of any European option and (ii) the induced implied volatility smile. As an illustration of our framework, we perform specific pricing and implied volatility computations for a CEV-like example. Numerical examples are provided.
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Bibliographic InfoPaper provided by arXiv.org in its series Papers with number 1207.0750.
Date of creation: Jul 2012
Date of revision: Nov 2012
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Web page: http://arxiv.org/
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-07-14 (All new papers)
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- Peter Carr & Vadim Linetsky, 2006. "A jump to default extended CEV model: an application of Bessel processes," Finance and Stochastics, Springer, vol. 10(3), pages 303-330, September.
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