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I'm trying to implement a method for calibrating the local volatility model (Dupire's one). I'm working on the paper from Andreasen and Huge : Volatility interpolation (SSRN). Is this considered to be a robust and commonly used algorithm for calibrating the local volatility or is there any other paper which might be better and commonly used ?

Thank you.

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There have been advances in that regard, but which papers are relevant really depends on what is it thay you may worry about.

For example, to compute a local volatility surface, you need to interpolate implied volatilities. Different approaches have been followed, the main ideas coming from the following two papers: M. Fengler - Arbitrage-Free Smoothing of the Implied Volatility Surface (2005) where the points in the implied volatility surface are adjusted to avoid arbitrage, and N. Kahale - An Arbitrage-free Interpolation of Volatilities (2003). These are a bit older than the one you mentioned, but triggered the following: C. Bender and M. Thiel - Arbitrage-free Interpolation of Call Option Prices (2019)

Another interesting paper is P. Austing Finite Difference Schemes with Exact Recovery of Vanilla Option Prices (2019).

Moreover, Labordere and Conze have been working on the topic. The paper actually granted Labordere another quant of the year award by Risk.net.


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