June 17, 2016 @ 8:00 am – 9:00 am
Auditorio Paraninfo. Claustro San Agustín. Universidad de Cartagena

Path-Dependent Volatility
Julien Guyon
Bloomberg LP. New York, US

So far, path-dependent volatility models have drawn little attention from both practitioners and academics compared to local volatility and stochastic volatility models. This is unfair: in this talk we show that they combine benefits from both. Like the local volatility model, they are complete and can fit exactly the market smile; like stochastic volatility models, they can produce rich implied volatility dynamics. Not only that: given their huge flexibility, they can actually generate a much broader range of spot-vol dynamics, thus possibly preventing large mispricings, and they can also capture prominent historical patterns of volatility. We give many examples to showcase their capabilities.

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