Following on from the first article on Target Redemption Forwards (see Handling the complexities), my colleagues Serena Manti and Gianluca Molteni have written an interesting article on pricing using the Dupire local volatility model as the path dependent features of these products means that the standard Balck Scholes model with it constatnt volatility assumption is not appropriate.
The article covers the maths, monte-carlo simultion, greeks, initialization and a numerical example.
Please read at Using a local volatility model for the evaluation of TARFs.
