Calibrating Local Volatility - Interpolation & Approximation

Specialeforsvar: Marcus Clausen

Titel: Calibrating Local Volatility - Interpolation & Approximation

Abstract: This thesis seeks to examine calibration of Dupire’s local volatility function for two different methods. One method focuses on using a calibrated implicit finite difference scheme to interpolate call-option prices for a full continuous surface. The
other uses tensor product B-splines that are calibrated to approximate the call-price surface. The methods are primarily analyzed and compared in terms of accuracy, speed and smoothness of the local volatility surface. 

Vejleder: Rolf Poulsen
Censor:   David Sloth Pedersen, Danske Bank