1
vote
0answers
140 views

For pricing, what types of Exotic Options are suitable using Local Volatility Model / Stochastic Volatility Model?

I understand that Stochastic Vol Models should be used when Exotic Option payoff is Volatility dependent (such as Variance Swaps and Volatility Swaps). Stochastic Vol Models should also be used when ...
17
votes
4answers
1k views

Local Volatility vs. Stochastic Volatility

Are there any empirical observations or practices when to prefer Local Volatility Model for pricing over Stochastic Model or vice versa?