As already explained in the previous chapters, in order to reproduce the real market dynamics it is necessary to introduce more sophisticated models than the Black-Scholes one. These models have to be calibrated to the market in order to approximate the quoted implied volatility surfaces: once this is done, they can give prices to exotic derivatives that are consistent with plain vanilla options.
KeywordsOption Price Call Option Implied Volatility Fourier Method Price Formula
Unable to display preview. Download preview PDF.