Calibrating and pricing with embedded local volatility models

Local volatility models introduced by Dupire (1994) and Derman & Kani (1994) are now widely used to price and manage the risks of structured products. The dimensionality of risks to be simultaneously managed continues to expand with the demand for hybrid products and the growth of markets directly trading volatility. The formulation and implementation of local volatility models in these higher-dimensional Markov contexts is now becoming an important issue. Of particular interest to the financial

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