Re: [Quantlib-dev] LocalvolSurface.cpp

[Klaus S. <kl...@sp...>]

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