Swap vega in BGM: pitfalls and alternatives
Raoul Pietersz and Antoon PelsserPractitioners who are developing the Libor BGM model for risk management of a swap-based interest rate derivative be warned: for certain volatility functions the estimate of swap vega may be poor. This may occur for time-homogeneous forward or swap rate volatility, but it does not occur for constant volatility. Raoul Pietersz and Antoon Pelsser explain and present an alternative method that estimates vega with clarity at a low number of simulation paths for all volatility functions
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