Bookcover of LIBOR Market Model
Booktitle:

LIBOR Market Model

Volatility Specifications

VDM Verlag Dr. Müller (2009-06-28 )

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ISBN-13:

978-3-639-17061-0

ISBN-10:
363917061X
EAN:
9783639170610
Book language:
English
Blurb/Shorttext:
The LMM is an effective framework for the pricing of interest rate derivatives, not least because it models observable market quantities. There exist three main techniques for incorporating a volatility smile/skew in any modelling framework: allowing a local volatility function, stochastic volatility and jump dynamics. Here various ways to incorporate smile/skew are studied, loosely based on the above three approaches. Both the CEV and displaced-diffusion processes give rise to an implied volatility skew. The two processes produce closely matching prices for European call options over a variety of strikes and maturities. Here, this similarity in prices is analytically quantified using asymptotic expansion techniques. A regime shifting model may be viewed as a reduced form of a full stochastic volatility model. A two state, continuous time Markov Chain model, characterised by a time dependent volatility in each state is implemented. Finally, the Levy LIBOR model is considered as a generalisation of jump processes.
Publishing house:
VDM Verlag Dr. Müller
Website:
http://www.vdm-verlag.de
By (author) :
Simona Svoboda-Greenwood
Number of pages:
188
Published on:
2009-06-28
Stock:
Available
Category:
Mathematics
Price:
68.00 €
Keywords:
Interest rate modelling, LIBOR Market Model, Volatility

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