Joining the SABR and Libor models together
The SABR model is a stochastic volatility dynamics for a single asset under its natural probability measure. However, when pricing general term structure payouts, we need to model the joint evolution of relevant rates, as in the Libor market model (LMM) of Brace, Gatarek & Musiela (1997). Moreover, if the stochastic volatility factors are correlated with the term structure of rates (as in Hagan et al, 2002, the underlying is correlated to its stochastic volatility), no-arbitrage constraints
Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.
To access these options, along with all other subscription benefits, please contact info@risk.net or view our subscription options here: http://subscriptions.risk.net/subscribe
You are currently unable to print this content. Please contact info@risk.net to find out more.
You are currently unable to copy this content. Please contact info@risk.net to find out more.
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Printing this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@risk.net
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Copying this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@risk.net
More on Interest rate derivatives
Regulation
FTX failure resets US crypto legislative programme
Lawmakers expected to seek stronger customer protection; industry wants flexibility for DeFi
Receive this by email