Robust Libor Modelling and Pricing of Derivative Products

Robust Libor Modelling and Pricing of Derivative Products

by John Schoenmakers
     
 

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ISBN-10: 158488441X

ISBN-13: 9781584884415

Pub. Date: 03/29/2005

Publisher: Taylor & Francis

The Libor market model is still one of the most popular and advanced tools for modeling interest rates and interest rate derivatives. However, finding a useful procedure for calibrating the model has been a perennial problem. Robust Libor Modelling and Pricing of Derivative Products introduces a new approach and its impact on Libor derivative pricing. Intended for

Overview

The Libor market model is still one of the most popular and advanced tools for modeling interest rates and interest rate derivatives. However, finding a useful procedure for calibrating the model has been a perennial problem. Robust Libor Modelling and Pricing of Derivative Products introduces a new approach and its impact on Libor derivative pricing. Intended for newcomers to financial mathematics and engineering, the book serves as a quick introduction to the area of interest rate modelling and pricing. It also provides an innovative treatment of issues concerning Libor calibration and the pricing of exotic instruments, that will appeal to more experienced practitioners in the field.

Product Details

ISBN-13:
9781584884415
Publisher:
Taylor & Francis
Publication date:
03/29/2005
Series:
Chapman and Hall/CRC Financial Mathematics Series
Pages:
228
Product dimensions:
6.30(w) x 9.40(h) x 0.70(d)

Table of Contents

ARBITRAGE-FREE MODELLING OF EFFECTIVE INTEREST RATES
Elements of Arbitrage Theory and Derivative Pricing
Modelling of Effective Forward Rates
Pricing of Caps and Swaptions in Libor and Swap Market Models

PARAMETRISATION OF THE LIBOR MARKET MODEL
General Volatility Structures
(Quasi) Time-Shift Homogeneous Models
Parametrisation of Correlation Structures
Some Possible Applications of Parametric Structures

IMPLIED CALIBRATION OF A LIBOR MARKET MODEL TO CAPS AND SWAPTIONS
Orientation and General Aspects
Assessment of the Calibration Problem
LSq Calibration and Stability Issues in Practice
Regularisation via a Collateral Market Criterion
Calibration of a Time-Shift Homogeneous LMM

PRICING OF EXOTIC EUROPEAN STYLE PRODUCTS
Exotic European Style Products
Factor Dependence of Exotic Products
Case Studies

PRICING OF BERMUDAN STYLE LIBOR DERIVATIVES
Orientation
The Bermudan Pricing Problem
Backward Construction of the Exercise Boundary
Iterative Construction of the Optimal Stopping Time
Duality; From Tight Lower Bounds to Tight Upper Bounds
Monte Carlo Simulation of Upper Bounds
Numerical Evaluation of Bermudan Swaptions by Different Methods
Efficient Monte Carlo Construction of Upper Bounds
Multiple Callable Structures

PRICING LONG DATED PRODUCTS VIA LIBOR APPROXIMATIONS
Introduction
Different Lognormal Approximations
Direct Simulation of Lognormal Approximations
Efficiency Gain with Respect to SDE Simulation; an Optimal
Simulation Program
Practical Simulation Examples
Summarisation and Final Remarks

APPENDIX
Glossary of Stochastic Calculus
Minimum Search Procedures
Additional Proofs
REFERENCES
INDEX

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