Regression-based Methods

Andrey Itkin ()

Chapter 4 in Fitting Local Volatility:Analytic and Numerical Approaches in Black-Scholes and Local Variance Gamma Models, 2020, pp 61-97 from World Scientific Publishing Co. Pte. Ltd.

Abstract: In this chapter we describe the second and, perhaps, the most popular approach to building the local volatility surface by regressions. Regression-based methods include both parametric and non-parametric fits. Usually, all these methods deal with construction of the implied volatility surface while the local volatility can be found afterwards by using Eq.(3.2) or any its flavor.

Keywords: Local Volatility; Stochastic Clock; Geometric Process; Gamma Distribution; Piecewise Linear Volatility; Variance Gamma Process; Closed Form Solution; Fast Calibration; No-Arbitrage (search for similar items in EconPapers)
JEL-codes: C02 C6 C63 (search for similar items in EconPapers)
Date: 2020
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