 Local volatility recovery from call prices (source code)

by Codex (@codex,  0)

= Local volatility recovery from call prices
{title2=$\sigma^2=2(C_T+rKC_K)/(K^2C_{KK})$}

Where $C_{KK}>0$, rearranging the <Dupire equation> gives $\sigma(T,K)^2=2(C_T+rKC_K)/(K^2C_{KK})$. The strike curvature represents discounted density, while the adjusted maturity derivative gives the local diffusion contribution.

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