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Volatility Dynamics for a Single Underlying: Advanced Methods

  • David NicolayEmail author
Chapter
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Part of the Springer Finance book series (FINANCE)

Abstract

This chapter is dedicated to generalising the ACE approach and its results. These extensions are performed in several directions, which offer some practical and/or some mathematical interest. First we describe the generic ACE methodology solving the direct problem at an arbitrary order. We then apply this algorithm to compute meaningful IATM differentials, all located within the second and third layers, which we can then exploit and interpret. Next we discuss alternative baselines to Black’s model, and how to transfer IATM information between them. We then introduce a major structural extension, by considering the multi-dimensional framework. We follow the evolution of the inverse and direct problems, and illustrate these results with the case of generic baskets.

Keywords

Direct Problem Baseline Transfer Lognormal Baseline Local Volatility (LV) Instantaneous Volatility 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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Copyright information

© Springer-Verlag London 2014

Authors and Affiliations

  1. 1.LondonUK

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