This thesis focuses on the local volatility model for option valuation, which is based on the Black-Scholes model. Although the latter represents a classical foundation for option pricing, it relies on the assumption of constant volatility, which, due to its simplification, rarely adequately reflects actual conditions in financial markets. The thesis presents the theoretical framework of the model, its intuitive derivation, practical application, and certain practical principles arising from its structure. The emphasis is on the mathematical understanding of the model, highlighting both its advantages and its drawbacks.
|
