A Short Note on Volatility Models

Abstract

This document is a short summary regarding the evolution of the volatility models from Black and Scholes to the Local-Stochastic Volatility models. We show advantages as drawbacks linked to each model, and how the community has moved from one model to another in order to overcome drawbacks.

Keywords: Volatility, Black and Scholes, Local Volatility, Stochastic Volatility, Local Stochastic Volatility, Black and Scholes, Dupire, Lipton, Labordere