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Local volatility model
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Local volatility
2026-10-06
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A
local volatility model
uses
a
deterministic
function
of current
time
and spot
as
its
diffusion
volatility,
σ
(
t
,
S
t
)
. It can reproduce
a
surface
of
European call option
prices through the
Dupire equation
.
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:
1