Parameter Estimation of Local Volatility inudCurrency Option Valuation

摘要

In quantitative finance and option pricing, one of the basic determinants of optionudprices is the volatility of the underlying asset. In this paper, we therefore, present a concise studyudof volatility in option pricing in the sense of Dupire’s approach. Thereafter, we outspread suchudstudy via the application of Ito formula to the modelling and valuation of currency option withudlocal volatility.udFor the purpose of efficiency, we use the daily historical prices of stock-S&P 500 for a certainudperiod to estimate the corresponding historical volatility. Graphical representation of theudanalysed daily historical data of stock prices with respect to a local volatility is presented