https://inflectionquant.com/tags/gyongy/Recent content in Gyongy on Inflection QuantHugoen-usThu, 23 Jul 2026 00:00:00 +0000https://inflectionquant.com/articles/local_vol/Thu, 23 Jul 2026 00:00:00 +0000https://inflectionquant.com/articles/local_vol/<h2 id="why-this-matters">Why This Matters</h2> <p>In an <a href="https://inflectionquant.com/articles/vol_surface_calibration/">earlier article</a> we constructed the implied volatility surface and used it primarily to price vanilla options. But a great deal of what trades is not vanilla. Products like barriers and autocallables depend on the path the underlying takes, not only where it lands.</p> <p>Suppose I price a barrier by Monte Carlo. At each step the spot sits at some level, and I need a volatility to advance it. What vol do I use? The surface gives me a vol for every strike, but simulation does not ask about strikes. It asks what volatility the spot experiences at this level, at this moment, which the surface cannot answer.</p>