Pricing Quanto and Composite Contracts with Local-Correlation Models
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arXiv
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| Format: | Preprint |
| Veröffentlicht: |
2025
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| _version_ | 1866917891328180224 |
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| author | Pallavicini, Andrea |
| author_facet | Pallavicini, Andrea |
| contents | Pricing composite and quanto contracts requires a joint model of both the underlying asset and the exchange rate. In this contribution, we explore the potential of local-correlation models to address the challenges of calibrating synthetic quanto forward contracts and composite options quoted in the market. Specifically, we design on-line calibration procedures for generic local and stochastic volatility models. The paper concludes with a numerical study assessing the calibration performance of these methodologies and comparing them to simpler approximations of the correlation structure. |
| format | Preprint |
| id |
arxiv_https___arxiv_org_abs_2501_07200 |
| institution | arXiv |
| publishDate | 2025 |
| record_format | arxiv |
| spellingShingle | Pricing Quanto and Composite Contracts with Local-Correlation Models Pallavicini, Andrea Pricing of Securities Computational Finance 65C05, 91G20, 91G60 Pricing composite and quanto contracts requires a joint model of both the underlying asset and the exchange rate. In this contribution, we explore the potential of local-correlation models to address the challenges of calibrating synthetic quanto forward contracts and composite options quoted in the market. Specifically, we design on-line calibration procedures for generic local and stochastic volatility models. The paper concludes with a numerical study assessing the calibration performance of these methodologies and comparing them to simpler approximations of the correlation structure. |
| title | Pricing Quanto and Composite Contracts with Local-Correlation Models |
| topic | Pricing of Securities Computational Finance 65C05, 91G20, 91G60 |
| url | https://arxiv.org/abs/2501.07200 |