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Dupire-Derman-Rubinstein Models
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Non-standard option and option portfolio hedging models pioneered by Bruno Dupire, Emanuel Derman and others. These models share a focus on the volatility smile and term structure and an ability to incorporate these features into a valuation. An important application of these models is the hedging of dealer books. They promise to reduce hedging costs and, consequently, to reduce the transaction costs of non-standard options. Also called Derman- Dupire-Rubinstein Models, Rubinstein-Dupire-Derman Models. See also Smile (diagram), Term Structure of Volatility.
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