Technical papers/Interest Rate Derivatives
A Libor market model with a stochastic basis
The advent of the financial crisis made the previously negligible bases between different overnight interest rates explode. Fabio Mercurio adapts the classic Brace-Gatarek-Musiela Libor market model to...
The basis between swaps referencing funded fixings and swaps referencing overnight collateralised fixings has increased in importance with the 2007–09 liquidity and credit crises. This basis means that...
The financial crisis multiplied the yield curves used to price interest rate derivatives, making traditional no arbitrage pricing no longer valid. By taking into account the basis adjustment bootstrapped...
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More Technical papers/Interest Rate Derivatives articles
Two curves, one price
The financial crisis multiplied the yield curves used to price interest rate derivatives, making traditional no arbitrage pricing no longer valid. By taking into account the basis adjustment bootstrapped from market basis swaps and using a foreign currency...
Two curves, one price
The financial crisis has multiplied the yield curves used to price plain vanilla interest rate derivatives, making classic single-curve no-arbitrage relations and pricing formulas no longer valid. Marco Bianchetti shows that no-arbitrage can be recovered...
Smooth calibration of Markov functional models for pricing exotic interest...
The Libor market model is widely used but often criticised for its slowness. Nick Denson and Mark Joshi develop an accurate and stable calibration procedure that allows for the effective use of a control variate
Information of interest
The flow of information in financial markets on future liquidity risk generates the rise and fall of demand for default-free bonds. Here, Dorje Brody and Robyn Friedman present an approach to pricing these bonds and the associated derivatives, based on...
A framework for extrapolation of long-term interest rates
The valuation of long-term liabilities necessarily involves the extension of yield curves beyond market quoted maturities. This article presents a method that results in decreased price volatility compared with Ceiops' approved approach. By David Antonio,...
Fast Monte Carlo Bermudan Greeks
In recent years, much effort has been devoted to improving the efficiency of the Libor market model. Matthias Leclerc, Qian Liang and Ingo Schneider extend the pioneering work of Giles & Glasserman (2006) and show how fast calculations of Monte Carlo...
Joining the SABR and Libor models together
Fabio Mercurio and Massimo Morini propose a Libor market model consistent with SABR dynamics and develop approximations that allow for the use of the SABR formula with modified inputs. They verify that the approximations are acceptably precise, imply...
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