In this paper, the authors develop a new local correlation model that uses a generic function 'g' to describe the correlation between all asset–asset pairs for a basket of underlyings.
UBS quants show prices can differ by up to 25 correlation points if products modelled accurately
The authors build a whole family of local correlation models by combining the particle method with a new, simple idea.
Julien Guyon introduces cross-dependent volatility models and calibrate them to market smiles
Local correlation families