The author considers a classical term structure model framework, ie, a Heath–Jarrow–Morton framework, on a time-discrete tenor, such as the London Interbank Offered Rate market model, using a sequence of tenor discretizations, where the tenors are valid…
The FMM is upgraded to model the full term structure, pricing all possible bonds and the bank account
The aim of this paper is to move away from a Gaussian assumption and to provide new algorithms that can be used to implement a Markov-functional model driven by a more general class of one-dimensional diffusion processes.
Risk Awards 2020: Quants extend Libor market model to accommodate backward rates
Interbank offered rates are critical in the world of contracts and derivatives, acting as reference rates in millions of financial contracts and with a total market exposure in the hundreds of trillions of dollars. Bloomberg explores why offering…
A commonly used quant model could be the answer to the replacement of forward-looking Libor
Some derivatives products will become more complex if there are no forward rates, say quants
Transition is an opportunity to reduce multi-rate complexities, say Bakkar and Brigo
Research into rates pricing is becoming more urgent given recent regulatory changes
Fabio Mercurio introduces a new multi-curve model for pricing futures convexity adjustments
A simple approximation for the no-arbitrage drifts in Libor market model–SABR-family interest-rate models
This paper presents a simple approximation for the noarbitrage drifts that appear in Libor market model SABR-family term structure models.
Numerical valuation of derivatives in high-dimensional settings via partial differential equation expansions
This paper presents a new numerical approach to solving high-dimensional partial differential equations that arise in the valuation of exotic derivative securities. The resulting numerical solutions are carefully compared in terms of accuracy and run…
Fast gammas for Bermudan swaptions
Accuracy or speed?
A quadratic volatility Cheyette model
CMS: covering all bases
A Libor market model with a stochastic basis
Classical with-profit life insurance products are traditionally backed by a buy-and-hold bond investment strategy. Using book-value accounting for such products tends to lead to a design of the guarantee rate based on an average of long-term interest…
The Libor market model is widely used but often criticised for its slowness. Nick Denson and Mark Joshi develop an accurate and stable calibration procedure that allows for the effective use of a control variate
A market model for the dynamics of credit-risky baskets and indexes such as the iTraxx has long been sought, but because of difficulties with the natural numéraire has remained elusive. Here, Philippe Carpentier proposes using hedging arguments to…
Riccardo Rebonato, Andrey Pogudin and Richard White examine the hedging performance of the SABR and LMM-SABR models using real market data. As a by-product, they gain indirect evidence about how well specified the two models are. The results are…