Abstract | ||
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In this paper we consider several parametric assumptions for the instantaneous covariance structure of the LIBOR market model, whose role in the modern interest-rate derivatives theory is becoming more and more central. We examine the impact of each different parameterization on the evolution of the term structure of volatilities in time, on terminal correlations and on the joint calibration to the caps and swaptions markets. We present a number of cases of calibration in the Euro market. In particular, we consider calibration via a parameterization establishing a controllable one to one correspondence between instantaneous covariance parameters and swaptions volatilities, and assess the benefits of smoothing the input swaption matrix before calibrating. |
Year | DOI | Venue |
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2005 | 10.1016/j.ejor.2003.12.004 | European Journal of Operational Research |
Keywords | Field | DocType |
Finance,Pricing,Stochastic processes,Interest rate modeling,LIBOR market model | Econometrics,Parametrization,LIBOR market model,Stochastic process,Libor,Smoothing,Parametric statistics,Swaption,Mathematics,Covariance | Journal |
Volume | Issue | ISSN |
163 | 1 | 0377-2217 |
Citations | PageRank | References |
1 | 0.38 | 0 |
Authors | ||
3 |
Name | Order | Citations | PageRank |
---|---|---|---|
Damiano Brigo | 1 | 17 | 8.42 |
Fabio Mercurio | 2 | 11 | 3.77 |
Massimo Morini | 3 | 1 | 0.38 |