Asset allocation has primarily focused its attention on attaining mean variance efficiency by employing diversification strategies following the portfolio selection methodologies of Markowitz[1952]. These are important principles that have given rise to a large variety of diversified investment...

The payoffs of exotic options (e.g., up‐and‐out call options) are dependent on the time‐path of asset prices rather than the price of the asset at a fixed point in time. The authors of this article compare various models for calibrating volatility surfaces in order to price up‐and‐out...