Is BGM Model An Answer To Bermudan Options, Exotics?


LONDON--While broker-dealers have been capitalizing on the increasing corporate demand for Bermudan options as an interest-rate hedge for coupons paid on callable-bond issuances, their risk managers have been urgently seeking without success a sophisticated model to help manage the liquidity and interest-rate risks created by the instrument's flexible optionality. Now, a growing number of risk managers are beginning to examine the BGM model as a potential solution for exotic derivatives like

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