Pricing Quanto and Composite Contracts with Local-Correlation Models
Pricing of Securities
2025-01-14 v1 Computational Finance
Abstract
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.
Keywords
Cite
@article{arxiv.2501.07200,
title = {Pricing Quanto and Composite Contracts with Local-Correlation Models},
author = {Andrea Pallavicini},
journal= {arXiv preprint arXiv:2501.07200},
year = {2025}
}