Bass Construction with Multi-Marginals: Lightspeed Computation in a New Local Volatility Model

2021 ◽  
Author(s):  
Antoine Conze ◽  
Pierre Henry-Labordere
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.

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