2026/04/28 by Valentin Tissot-Daguette, Valentin Tissot‐Daguette · 1 voice
Economics, Econometrics and Finance · #Calibration #Capital Investment and Risk Analysis #Complex Systems and Time Series Analysis #Forward volatility #Implied volatility #Local volatility #Stochastic processes and financial applications #Stochastic volatility #Stylized fact #Volatility (finance) #Volatility smile #q-fin.CP #q-fin.MF #q-fin.PR
paper · pdf · doi:10.1142/s2705109926700025
arxiv published 2026/04/28 · arxiv updated 2026/04/28 · openalex publication_date 2026/06/01 · openalex created_date 2026/06/12 · openalex updated_date 2026/07/02
In this paper, we introduce the Local Occupied Volatility (LOV) model that sits between Dupire’s local volatility and fully path-dependent dynamics. By design, the LOV model ensures automatic calibration to European vanilla options, while offering the flexibility to capture stylized facts of volatility or fit additional instruments. This is achieved by tuning the occupation sensitivity function that quantifies the effect of path-dependent shocks on volatility. We validate the model through the joint American-European calibration of options chain on non-dividend paying stocks.