Timeline for Intuition behind local volatility curve shapes in interest rate environments
Current License: CC BY-SA 4.0
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| Jul 18, 2020 at 14:39 | comment | added | ryc | Note that for a stochastic-local volatility (SLV) model that is perfectly calibrated to the vanilla prices, you must apply Dupire's formula to get the LV component, which is a result due to Gyongy's lemma. For $\beta=0.5$, you assume vol increases in square root of $F$, while for $\beta=1$, you assume vol increases in linearly with $F$. The LV curve (surface) is basically a function of volatility against spot (and time). | |
| Jun 20, 2020 at 11:23 | history | asked | Charlie Shuffler | CC BY-SA 4.0 |