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LIBOR Market Model

by Simona Svoboda-Greenwood
Save 12% Save 12%
Current price ₹6,277.00
Original price ₹7,140.00
Original price ₹7,140.00
Original price ₹7,140.00
(-12%)
₹6,277.00
Current price ₹6,277.00

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Book cover type: Paperback
  • ISBN13: 9783639170610
  • Binding: Paperback
  • Subject: N/A
  • Publisher: VDM Verlag
  • Publisher Imprint: VDM Verlag
  • Publication Date:
  • Pages: 188
  • Original Price: GBP 56.44
  • Language: English
  • Edition: N/A
  • Item Weight: 282 grams
  • BISAC Subject(s): Probability & Statistics / General

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.

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