We consider a Heston type inflation model in combination with a Hull–White model for nominal and real interest rates, in which all the correlations can be non-zero. Due to the presence of the Heston dynamics our derived inflation model is able to capture the implied volatility skew/smile,...

We present in a Monte Carlo simulation framework a novel approach for the evaluation of hybrid local volatility (Dupire 1994, Derman and Kani 1998) models. In particular, we consider the stochastic local volatility model - see e.g. Lipton et al. (2014), Piterbarg (2007), Tataru and Fisher...

We model the joint dynamics of stock and interest rate by a hybrid SABR-Hull-White model, in which the asset price dynamics are modeled by the SABR model and the interest rate dynamics by the Hull-White short-rate model. We propose a projection formula, mapping the SABR-HW model parameters onto...