AdvancedMultiple choice
What is the essential difference between a local volatility model and a stochastic volatility model?
- ALocal vol is a deterministic function of spot and time; stochastic vol gives volatility its own driver
- BLocal vol handles American options and stochastic vol does not
- CStochastic vol is calibrated to history and local vol to option prices
- DLocal vol is arbitrage-free and stochastic vol is not
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