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The Exact Smile of some Local Volatility Models

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  • Matthew Lorig

Abstract

We 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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  • Matthew Lorig, 2012. "The Exact Smile of some Local Volatility Models," Papers 1207.0750, arXiv.org, revised Nov 2012.
    • Handle: RePEc:arx:papers:1207.0750
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    1. 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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