Re: LocalvolSurface.cpp

Posted by Klaus Spanderen-2 on
URL: http://quantlib.414.s1.nabble.com/LocalvolSurface-cpp-tp12806p12816.html

Hi Michael,

> Anyways, can you send me a link or a paper with more information about the
> arbitrage violations due to constant extrapolation? I still cant see why
> constant extrapolation is violating the arbitrage criteria.

Please find attached a small program, where the constant extrapolation as
implemented in BlackVarianceSurface generates an arbitrage violation  -
negative call spread price when the maturity becomes large enough. To get it
running you have to enable extrapolation in analyticeuopeanengine.hpp at line
45. (Hope I got everything right with the example;-)
 
regards
 Klaus

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