The SABR/LIBOR Market Model: Pricing, Calibration and Hedging for Complex Interest-Rate Derivatives
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The authors take the SABR model as the starting point for their extension of the LMM because it is a good model for European options. The problem, however with SABR is that it treats each European option in isolation and the processes for the various underlyings (forward and swap rates) do not talk to each other so it isn't obvious how to relate these processes into the dynamics of the whole yield curve. With this new model, the authors bring the dynamics of the various forward rates and stochastic volatilities under a single umbrella. To ensure the absence of arbitrage they derive drift adjustments to be applied to both the forward rates and their volatilities. When this is completed, complex derivatives that depend on the joint realisation of all relevant forward rates can now be priced.
THE THEORETICAL SET-UP
The Libor Market model
The SABR Model
The LMM-SABR Model
IMPLEMENTATION AND CALIBRATION
Calibrating the LMM-SABR model to Market Caplet prices
Calibrating the LMM/SABR model to Market Swaption Prices
Calibrating the Correlation Structure
The Empirical problem
Estimating the volatility of the forward rates
Estimating the correlation structure
Estimating the volatility of the volatility
Hedging the Volatility Structure
Hedging the Correlation Structure
Hedging in conditions of market stress
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The SABR/LIBOR Market Model: Pricing, Calibration and Hedging for Complex Interest-Rate Derivatives (US $105.00)
-and- Financial Engineering: The Evolution of a Profession (US $95.00)
Total List Price: US $200.00
Discounted Price: US $150.00 (Save: US $50.00)