Publication: Pricing autocallables under local-stochastic volatility
Pricing autocallables under local-stochastic volatility
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Farkas, W., Ferrari, F., & Ulrych, U. (2024). Pricing autocallables under local-stochastic volatility. In R. A. Yarrow & D. Madan (Eds.), Peter Carr Gedenkschrift: Research Advances in Mathematical Finance (pp. 329–378). World Scientific Pulishing. https://doi.org/10.1142/9789811280306_fmatter
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This chapter investigates the pricing of single-asset autocallable barrier reverse convertibles in the Heston local-stochastic volatility (LSV) model. Despite their complexity, autocallable structured notes are the most traded equity-linked exotic derivatives. The autocallable payoff embeds an early redemption feature generating strong path and model dependency. Consequently, the commonly used local volatility (LV) model is overly simplified for pricing and risk management. Given its ability to match the implied volatility smile and r
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Farkas, W., Ferrari, F., & Ulrych, U. (2024). Pricing autocallables under local-stochastic volatility. In R. A. Yarrow & D. Madan (Eds.), Peter Carr Gedenkschrift: Research Advances in Mathematical Finance (pp. 329–378). World Scientific Pulishing. https://doi.org/10.1142/9789811280306_fmatter