Singular Exotic Perturbation
18 Pages Posted: 15 Jun 2021
Date Written: May 2021
The Local Stochastic Volatility model is the main model used to take into account the correct pricing and hedging with the volatility dynamic.
We introduce a new methodology that combines Singular perturbation analysis and exotic greek computation. We obtain asymptotic formulae for the LSV impact which work extremely well. Tests are performed on the mostly traded Autocalls in the equity derivatives business.
Keywords: LSV, LV, Singular perturbation, Price adjustment, Exotic greeks, Fast pricing
JEL Classification: C13, C61, C63, G12, G13
Suggested Citation: Suggested Citation