Smooth calibration of Markov functional models for pricing exotic interest rate derivatives

Nick Denson and Mark Joshi
23 Jul 2010

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The Libor market model (LMM) is commonly used for pricing exotic interest rate derivatives. However, its popularity is limited by the fact that its high-dimensionality necessitates (quasi)-Monte Carlo simulation for pricing. Such simulation is often criticised because of its low convergence rate and the difficulties of pricing early-exercisable derivatives.

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Smooth calibration of Markov functional models for pricing

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