<t>the Alan Lewis book is very good* >><br/> <br/> Yeah, I caught that part. Though I think Hull is good, my mom wouldn't get it at all. We're still working on the "No, not the currency" Eurodollar issue after 3+ years. Nevermind. <br/> <br/> * I've heard it gets pretty cold in Chicago, you do need ...

<t>the Alan Lewis book is very good >><br/> <br/> The three books that seem to cover stoch vol models are Lewis [Option Valuation under Stoch. Vol.], PWQF, & Foque [Derivatives in Financial Markets with Stoch. Vol.]. I've been unable to find any of these in a store (it's a shame the Barnes &...

<t>The problem arises because in the local vol model, the volatility depends on absolute values of F, not on relative values. Suppose we<br/> <br/> ...<br/> <br/> Stochastic vol models do not (have to) suffer from these problems; the vol-of-vol term causes a smile which naturally stays centerred aro...

<t>Pete reads message 3 times, scratches head, misses futures... <br/> <br/> sigma(K) = A(0.5[f+K]) + ...<br/> <br/> Ie, to leading order the implied vol is the local vol halfway between today's forward and the strike. >><br/> <br/> With you so far- sounds reasonable enough. By local vol here, I ass...

<r>Dupire's local vol model, Derman-Kani implied tree model:<br/> ...<br/> so that its minimum is at 105. IMPLIED TREE MODELS and other local volatility models predict that the Smile moves in the Opposite direction as the price of the underlying asset.<br/> (Don't take my word for it; try it out!)<b...

<t>In my browsing for software, I've found a bunch of products that are stand-alone models that plug in to a trade processing system, but none that are intended to do the reverse. What I'm ideally looking for is a system to handle the backend stuff- trade entry, P&L, etc. -while allowing me to p...