KIKO Put with sto local vol

reaverprog · May 15th, 2013, 5:30 am

Dear all,I have a knock-in knock-out put on FTSE where the knock-in is observed daily and the knock-out barrier is observed yearly.Why do I need to price this option with the stochastic local vol or stochastic local implied vol models ? Why not with Local vol model ? How can I do going forward to understand in which case it?s ?obvious? to use stochastic local vol model ?Thanks

Alan · May 16th, 2013, 2:00 pm

My advice: first try out any FTSE model by applying it to SPX and the VIX options smile. It's a good way to discriminate models for broad-based equity index derivatives.