my 2 cents, by parameterizing vol by strike vol(x)=vol_0(1+a(vol_0)*x+b(vol_0)*x^2), he assumed that the smile dynamic is deterministic for the time period before recalibration, since neither a or b is function of time. skew decay would be change of a(vol_0) relative to time and in Bergomi's framewo...

As Gatheral says repeatedly in the chapter (bottom of pg 32, for example) he is trying to derive an approximation valid close-to-money. So, it's meant to be just the first two terms of an approximate Taylor series in the moneyness parameter about the at-the-money point. Perhaps you should compute b...

I'm reading this classic book but the Heston fit in Ch.3 confuses me.  The basic idea of the chapter is: 1. derive implied vol in terms of local vol 2. derive local vol expression for a certain SVM (Heston in this case) 3. with 1 & 2, derive implied vol expression from the SVM 4. with 3 and mark...

Not pretty clear with your question. Do you mean the functional form of local vol in terms of IV? And what do you mean by 'using two different year fracs for Vol Days and Carry?'

Yup, the slope goes to zero (skew goes constant) at the tails. I'm also confused about this setting.

I attached a plot from the manual.

Hi guys, I'm reading the quant manual from ORC (now part of ITIVITI) and learned the 'wing model' they use for fitting the volatility curve. Volatility models specifics - SourceForge https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&ved=0ahUKEwjl4OvIqt7VAhVFs1QK...

I tried to fit the raw SVI with the Quasi Explicit Method by Zeliade. The parameters turned out to be too unstable for reference use in real trading (though the model does fit well). The problem seemed to be that there are too many local min's when using iterations in the second step to get the opti...