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arXiv · 2109.02405

Positive Stochastic Collocation for the Collocated Local Volatility Model

Fabien Le Floc'h·Cornelis W. Oosterlee
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Abstract

This paper presents how to apply the stochastic collocation technique to assets that can not move below a boundary. It shows that the polynomial collocation towards a lognormal distribution does not work well. Then, the potentials issues of the related collocated local volatility model (CLV) are explored. Finally, a simple analytical expression for the Dupire local volatility derived from the option prices modelled by stochastic collocation is given.

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BibTeXRIS

Fabien Le Floc'h, Cornelis W. Oosterlee. 2021-09-06. Positive Stochastic Collocation for the Collocated Local Volatility Model. https://arxiv.org/abs/2109.02405

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