The interplay between stochastic volatility and correlations in equity autocallables

Study shows issues with pricing autocallables using SLV

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Alvise De Col and Patrick Kuppinger investigate typical equity worst-of autocallable structures within industry-standard multidimensional stochastic local volatility models. Introducing the corresponding effective local volatility models, they show how correlations between the stochastic variances play a central role in autocallable prices and risk management. One key result is that the pricing behaviour cannot be explained by the common belief that stochastic

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