Jumping smiles
Since it was first outlined in these pages in 1994, the so-called local volatility approachto option smiles has been the key theoretical tool in attempting to incorporate marketinformation into the Black-Scholes framework. Recently, however, this approach hasbeen criticised. Now, Leif Andersen and Jesper Andreasen offer a convincingreplacement in the form of an analytic jump-diffusion model
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