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Cross-currency smile calibration

Author

Listed:
  • Gabriel Turinici

    () (CEREMADE - CEntre de REcherches en MAthématiques de la DEcision - Université Paris-Dauphine - CNRS - Centre National de la Recherche Scientifique)

  • Marc Laillat

    (Adfin Analytics team - Thsomson Reuters)

Abstract

We 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.

Suggested Citation

  • Gabriel Turinici & Marc Laillat, 2009. "Cross-currency smile calibration," Post-Print hal-00351016, HAL.
  • Handle: RePEc:hal:journl:hal-00351016
    Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-00351016
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