Technical paper/Local volatility models
An arbitrage-free interpolation of volatilities
Nabil Kahalé describes a new construction of an implied volatilities surface from a discrete set of implied volatilities that is arbitrage-free and satisfies some smoothness conditions. His method provides an excellent fit to the smile of the local…
Universal Barriers
As our survey in this issue shows, there is an increasing volume of barrier products traded in the forex options market. Here, Alexander Lipton and William McGhee discuss the pricing of barriers under various model frameworks, with particular focus on…
A mixed-up smile
Implied volatility
If the skew fits
Volatility