The Volatility Surface: A Practitioner's Guide

List of Figures. List of Tables. Foreword. Preface. Acknowledgments. Chapter 1: Stochastic Volatility and Local Volatility. Stochastic Volatility. Derivation of the Valuation Equation, Local Volatility, History, A Brief Review of Dupire's Work, Derivation of the Dupire Equation, Local Volatility in Terms of Implied Volatility, Special Case: No Skew, Local Variance as a Conditional Expectation of Instantaneous Variance. Chapter 2: The Heston Model. The Process. The Heston Solution for European Options. A Digression: The Complex Logarithm in the Integration (2.13). Derivation of the Heston Characteristic Function. Simulation of the Heston Process. Milstein Discretization. Sampling from the Exact Transition Law.…