Publication: Pricing autocallables under local-stochastic volatility
Pricing autocallables under local-stochastic volatility
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Farkas, W., Ferrari, F., & Ulrych, U. (2022). Pricing autocallables under local-stochastic volatility. Frontiers of Mathematical Finance, 1(4), 575–610. https://doi.org/10.3934/fmf.2022008
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This paper 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 re
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Farkas, W., Ferrari, F., & Ulrych, U. (2022). Pricing autocallables under local-stochastic volatility. Frontiers of Mathematical Finance, 1(4), 575–610. https://doi.org/10.3934/fmf.2022008
