Approximate Local Volatility Model for Vanilla Rates Options

2018 ◽  
Author(s):  
Sebastian Schlenkrich
Keyword(s):  
Local Volatility ◽  
Local Volatility Model ◽  
Volatility Model

Libor Local Volatility Model: A New Interest Rate Smile Model

Wilmott ◽  
2016 ◽  
Vol 2016 (82) ◽  
pp. 78-87 ◽  
Author(s):  
Dingqiu Zhu ◽  
Dong Qu
Keyword(s):  
Interest Rate ◽  
Local Volatility ◽  
Local Volatility Model ◽  
Volatility Model

scholarly journals Robustness of Delta Hedging for Path-Dependent Options in Local Volatility Models

2007 ◽  
Vol 44 (04) ◽  
pp. 865-879 ◽  
Author(s):  
Alexander Schied ◽  
Mitja Stadje
Keyword(s):  
Payoff Function ◽  
Hedging Strategy ◽  
Local Volatility ◽  
Directional Convexity ◽  
Volatility Models ◽  
Local Volatility Model ◽  
Volatility Model ◽  
Black Scholes ◽  
Delta Hedging ◽  
Path Dependent

We consider the performance of the delta hedging strategy obtained from a local volatility model when using as input the physical prices instead of the model price process. This hedging strategy is called robust if it yields a superhedge as soon as the local volatility model overestimates the market volatility. We show that robustness holds for a standard Black-Scholes model whenever we hedge a path-dependent derivative with a convex payoff function. In a genuine local volatility model the situation is shown to be less stable: robustness can break down for many relevant convex payoffs including average-strike Asian options, lookback puts, floating-strike forward starts, and their aggregated cliquets. Furthermore, we prove that a sufficient condition for the robustness in every local volatility model is the directional convexity of the payoff function.

scholarly journals Incorporating an Interest Rate Smile in an Equity Local Volatility Model

2008 ◽  
Author(s):  
Lech A. Grzelak ◽  
Natalia Borovykh ◽  
Sacha van Weeren ◽  
Cornelis W. Oosterlee
Keyword(s):  
Interest Rate ◽  
Local Volatility ◽  
Local Volatility Model ◽  
Volatility Model
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