21 Pages Posted: 16 Nov 2016 Last revised: 4 Sep 2017
Date Written: September 4, 2017
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: 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