I am trying to understand the assumptions and weaknesses of a Dupire Local Volatility model.

If dividends are assumed linear, is it a problem for model calibration? If yes, why?

Why would large values of discrete dividends cause calibration problems?

Is there a pedagogical resource to understand these limitations of Local Volatility models?



Your Answer

By clicking “Post Your Answer”, you agree to our terms of service and acknowledge that you have read and understand our privacy policy and code of conduct.