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Under the conditions of continuous dividend SVI -based formulas and functions Dupire local volatility surface calibration

Author: YangHuaShuai
Tutor: ZhouYuan
School: Fudan University
Course: Operational Research and Cybernetics
Keywords: implied volatility local volatility SVI function Dupire’s formula option
CLC: F830.9
Type: Master's thesis
Year: 2011
Downloads: 16
Quote: 0
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Abstract


Knowing prices of standard European options, we consider the underlying asset with con-tinuous dividends and adjusted prices of its European options, and discuss how to calibrate the local volatility surface. Starting from the SVI function, we first deduce the approximating implied volatility surface function with three methods. Then we calibrate the local volatility surface with the expression function of local volatility which is derived from Dupire’s formula. Finally we verify the effectiveness of these three methods in a numerical example.

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CLC: > Economic > Fiscal, monetary > Finance, banking > Finance, banking theory > Financial market
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