Volatility interpolation

Volatility interpolation

Local volatility models such as those of Dupire (1994), Andersen & Andreasen (1999), JP Morgan (1999) and Andreasen & Huge (2010) ideally require a full continuum in expiry and strike of arbitrage-consistent European-style option prices as input. In practice, of course, we only observe a discrete set of option prices.

Volatility interpolation

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