Download this Paper Open PDF in Browser

Local Volatility from American Options

21 Pages Posted: 16 Nov 2016 Last revised: 4 Sep 2017

Stefano De Marco

Ecole Polytechnique, Paris - Centre de Mathematiques Appliquees

Pierre Henry-Labordere

Société Générale - Paris, France

Date Written: September 4, 2017

Abstract

In this paper, we focus on short-time asymptotics for American options in the case of local and stochastic volatility models. As a by-product, we obtain an efficient algorithm for calibrating Dupire's local volatility to American options, starting from an arbitrage-free parametrization of a European implied volatility. This is illustrated by various numerical experiments.

Keywords: Local volatility model, stochastic volatility model, American options, calibration, discrete dividends

Suggested Citation

De Marco, Stefano and Henry-Labordere, Pierre, Local Volatility from American Options (September 4, 2017). Available at SSRN: https://ssrn.com/abstract=2870285

Stefano De Marco

Ecole Polytechnique, Paris - Centre de Mathematiques Appliquees ( email )

Palaiseau Cedex, 91128
France

Pierre Henry-Labordere (Contact Author)

Société Générale - Paris, France ( email )

Paris-La Défense, Paris 92987
France

Paper statistics

Downloads
269
Rank
99,658
Abstract Views
602