Local Volatility Models
A) Look to Describe Volatility Accurately Locally $S$

question 25

Multiple Choice

Local volatility models

• A) Look to describe volatility accurately locally in time (i.e., around the current time) but not necessarily in the longer run.
• B) Look to describe volatility accurately locally in space (i.e., around the current stock price \(S\) ) but not necessarily when stock prices move away from current levels.
• C) Look to identify the form \(\sigma \left( S _ { t } , t \right)\) for evolution of volatility that will give rise to the currently observed set of option prices.
• D) And stochastic volatility models are exactly the same thing.

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