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by FabHK
618 days ago
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Generally, you back out local vols (as a function of S, t) of the BS vols (as a function of K, T) by a process described first by Dupire, and then you price American options (and other products that are not sensitive to vol of vol) with that using a numerical PDE solver. https://en.wikipedia.org/wiki/Local_volatility |
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