Rough PDEs for local stochastic volatility models (Q6953237)

In this work, the authors introduce a novel pricing methodology in general, possibly non-Markovian local stochastic volatility (LSV) models. Conveniently, the conditional dynamics is related to the so-called rough partial differential equations (RPDEs) by a Feynman-Kac type formula. Section 3.3 demonstrates how (conditional) option prices in LSVMs can be obtained as solutions to these RPDEs, which is explicitly illustrated in Section 3.4 for two SV examples. Section 4 focuses on numerical illustrations. The authors introduce two finite-difference schemes for solving RPDEs in Section 4.1, and apply them in Section 4.2 to price European options and to compute corresponding Greeks. Appendix A contains the technical proofs of the main results.