Bank, Peter; Bayer, Christian; Friz, Peter K.; … - In: Mathematical Finance 35 (2025) 3, pp. 661-681
In this work, we introduce a novel pricing methodology in general, possibly non‐Markovian local stochastic volatility (LSV) models. We observe that by conditioning the LSV dynamics on the Brownian motion that drives the volatility, one obtains a time‐inhomogeneous Markov process. Using tools...