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What is Stochastic Volatility and Local Models about?

This document summarizes a lecture on stochastic volatility and local volatility models for pricing equity options. It discusses the motivation for stochastic volatility models in explaining the volatility smile seen in options prices. It then derives the valuation equation for a stochastic volatility model, where both stock price and volatility are modeled as random processes. Finally, it provides a brief history of local volatility models and summarizes Dupire

Author

abhishek210585

Language

EN