Testing the local volatility assumption: a statistical approach
In practice, the choice of using a local volatility model or a stochastic volatility model is made according to their respective ability to fit implied volatility surfaces. In this paper, we adopt an opposite point of view. Indeed, based on historical data, we design a statistical procedure aiming at testing the assumption of a local volatility model for the price dynamics, against the alternative of a stochastic volatility model.
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Volume (Year): 8 (2012)
Issue (Month): 1 (February)
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2004,32, Technische Universität Dortmund, Sonderforschungsbereich 475: Komplexitätsreduktion in multivariaten Datenstrukturen.
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