Risk magazine - Volume17/No3

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…

Multi-factor adjustment

The author presents an analytical method for calculating portfolio value-at-risk and expected shortfall in the multi-factor Merton framework. This method is essentially an extension of the granularity adjustment technique to a new dimension.

Unifying volatility models

This article introduces a method for building analytically tractable option pricing models that combine state-dependent volatility, stochastic volatility and jumps. The eigenfunction expansion method is used to add jumps and stochastic volatility to…

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