Pricing Quanto and Composite Contracts with Local-Correlation Models
Pricing Quanto and Composite Contracts with Local-Correlation Models ArXiv ID: 2501.07200 “View on arXiv” Authors: Unknown 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. ...