A Supplement to Remark on Local Volatility

Abstract

The concept of the Local Volatility was developed in [1-3]. Later this concept was broadly generalized and extends in particular to cover stochastic local volatility phenomena. A number of companies offer their products which call for more accurate forecast of options pricing and one can check that it is a quite significant business in financial world. In this paper we briefly outlined a critical point of view on mathematical basics of the construction of the Local Volatility in [4]. Here we present the Local Volatility concept in greater details.

Keywords: local volatility, call option

JEL Classification: G12, G13, C60