Cross-Currency Smile Calibration

G. Turinici and M. Laillat (France)


cross-currency options, calibration, local volatility, impliedvolatility, Dupire formula, adjoint, boundary conditions


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. .

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