Cross-currency smile calibration
AbstractWe document the numerical aspects of the calibration of cross-currency options on the local volatility framework. We consider the partial differential equation satisfied by the price of the cross-currency option and see that the most important specifications to set are the boundary conditions. We explain how these conditions can be approximated and test the validity of the approximation on simple cases.
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Bibliographic InfoPaper provided by HAL in its series Post-Print with number hal-00351016.
Date of creation: 01 Feb 2009
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Publication status: Published - Presented, Modelling, Identification and Control, 2009, Innsbruck, Austria
Note: View the original document on HAL open archive server: http://hal.archives-ouvertes.fr/hal-00351016
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Web page: http://hal.archives-ouvertes.fr/
cross-currency options; calibration; local volatility; implied volatility; Dupire formula; adjoint; boundary conditions;
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