{"status":"ok","message-type":"work","message-version":"1.0.0","message":{"indexed":{"date-parts":[[2026,10,22]],"date-time":"2026-10-22T15:46:06Z","timestamp":1792683966796,"version":"4.5.0"},"posted":{"date-parts":[[2026]]},"group-title":"SSRN","reference-count":0,"publisher":"Elsevier BV","license":[{"start":{"date-parts":[[2026,1,1]],"date-time":"2026-01-01T00:00:00Z","timestamp":1767225600000},"content-version":"unspecified","delay-in-days":0,"URL":"https:\/\/creativecommons.org\/licenses\/by-nc-nd\/4.0\/"}],"content-domain":{"domain":[],"crossmark-restriction":false},"short-container-title":[],"abstract":"<jats:p>Local Stochastic Volatility (LSV) models bridge the gap between traditional local volatility (LV) and stochastic volatility (SV) frameworks, providing a robust mechanism for pricing and risk-managing exotic foreign exchange (FX) and equity derivatives. This paper explores the intricate calibration techniques required to fit LSV models to market smile surfaces without destabilizing forward distributions. We examine the numerical procedures governing Dupire local volatility extraction coupled with stochastic volatility drivers, evaluating stability, convergence, and performance across various market regimes. Our empirical findings demonstrate that calibrated LSV frameworks significantly reduce pricing errors for path-dependent options such as barrier and Bermudan swaptions compared to standalone stochastic volatility models. Furthermore, the study investigates the computational trade-offs inherent in calibrating multi-dimensional volatility surfaces, offering practical guidelines for trading desks operating under strict latency constraints. By benchmarking our algorithmic approach against historical cross-asset data, we establish that the proposed calibration framework achieves high numerical robustness while mitigating common pitfalls such as overfitting and local minima trapping.<\/jats:p>","DOI":"10.2139\/ssrn.7656258","type":"posted-content","created":{"date-parts":[[2026,10,22]],"date-time":"2026-10-22T15:24:38Z","timestamp":1792682678000},"source":"Crossref","is-referenced-by-count":0,"title":["Derivatives, Volatility &amp;amp; Fixed Income Calibration of Local Stochastic Volatility (LSV) Models in Exotic FX\/Equity Derivatives"],"prefix":"10.2139","author":[{"ORCID":"https:\/\/orcid.org\/0009-0007-8475-2558","authenticated-orcid":true,"given":"Henry","family":"Mayambu","sequence":"first","affiliation":[],"role":[{"vocabulary":"crossref","role":"author"}]}],"member":"78","container-title":[],"original-title":[],"deposited":{"date-parts":[[2026,10,22]],"date-time":"2026-10-22T15:24:39Z","timestamp":1792682679000},"score":1,"resource":{"primary":{"URL":"https:\/\/www.ssrn.com\/abstract=7656258"}},"subtitle":[],"short-title":[],"issued":{"date-parts":[[2026]]},"references-count":0,"URL":"https:\/\/doi.org\/10.2139\/ssrn.7656258","relation":{},"subject":[],"published":{"date-parts":[[2026]]},"subtype":"preprint"}}