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Local and stochastic volatility

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Reference no: EM131499076

Local and Stochastic volatility:

a. What is a volatility surface and how does it point in general to the limitations of the Black-Scholes model? Discuss.

b. Describe the algorithm based on the Newton method to compute implied volatilities.

c. Briefly explain the main differences and common features of local and stochastic volatility models.

Reference no: EM131499076

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