Deelstra, Griselda; Rayée, Grégory - In: Applied Mathematical Finance 20 (2013) 4, pp. 380-402
We study the local volatility function in the foreign exchange (FX) market, where both domestic and foreign interest rates are stochastic. This model is suitable to price long-dated FX derivatives. We derive the local volatility function and obtain several results that can be used for the...