Interest rate markets

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…

Rates squared

Vladimir Piterbarg introduces a conveniently parameterised class of multi-factor quadratic Gaussian models, develops calibration formulas and explains the advantages of this class of models over alternatives currently available for the pricing and risk…

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…

Feeling deflated

The consensus is that interest rates are headed for zero in 2009, with even the long end of the curve looking depressingly flat. William Rhode looks at how structured products are likely to function in such an environment - from both an issuer and…

Rates squared

Vladimir Piterbarg introduces a conveniently parameterised class of multi-factor quadratic Gaussian models, develops calibration formulas, and explains the advantages of this class of models over alternatives currently available for pricing and risk…

Juggling snowballs

Previous work on the valuation of cancellable snowball swaps in the Libor market model suggested the use of nested Monte Carlo simulations was needed to obtain accurate prices. Here, Christopher Beveridge and Mark Joshi introduce new techniques that…

Combining the SABR and LMM models

Pierre Henry-Labordere analyses a stochastic volatility Libor market model that combines the SABR and Brace-Gatarek-Musiela (BGM) models in a natural way. Using an innovative geometrical method, he explains how to obtain analytical formulas for swaption…

The rates escape

A sudden inversion of the euro interest rate curve in June caught dealers and investors by surprise, causing losses for those that had put on curve steepener trades. Dealers rushed to hedge their short gamma positions, forcing the curve to invert further…

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