Abstract
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 reproduce its realistic dynamics, the LSV model is, in contrast, better suited for exotic derivatives, such as autocallables. We use quasi-Monte Carlo methods to study the pricing given the Heston LSV model and compare it with the LV model. In particular, we establish the sensitivity of the valuation differences of autocallables between the two models with respect to pay-off features, model.