Abstract
The stock market crash of 1987 proved to be a major turning point in financial markets as the Black-Scholes model assumption of constant volatility was violated. A new phenomena known as the “volatility smile” was observed post the crisis and this has been one focus area of Quantita- tive Finance researchers over the past couple of decades. Almost 20 years after the crash now known as “Black Monday”, the 2007 global financial crisis occurred which showed that numerous other factors need to be con- sidered when pricing derivatives. Collateral for instance is considered by Piterbarg. In this paper we present a local volatility model used to price arithmetic Asian call options in the Piterbarg framework.