Calibration of Multicurrency LIBOR Market Models
AbstractThis paper presents a methodf or calibrating a multi currency lognormal LIBOR Market Model to market data of at-the-money caps, swaptions and FX options. By exploiting the fact that multivariate normal distributions are invariant under orthonormal transformations, the calibration problem is decomposed into manageable stages, while maintaining the ability to achieve realistic correlation structures between all modelled market variables.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Quantitative Finance Research Centre, University of Technology, Sydney in its series Research Paper Series with number 286.
Date of creation: 01 Dec 2010
Date of revision:
currency options; LIBOR market model; exchange rate risk; interest rate risk;
This paper has been announced in the following NEP Reports:
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Kay Pilz & Erik Schlogl, 2009. "A Hybrid Commodity and Interest Rate," Research Paper Series 261, Quantitative Finance Research Centre, University of Technology, Sydney.
- Black, Fischer, 1976. "The pricing of commodity contracts," Journal of Financial Economics, Elsevier, vol. 3(1-2), pages 167-179.
- Miltersen, Kristian R & Sandmann, Klaus & Sondermann, Dieter, 1997.
" Closed Form Solutions for Term Structure Derivatives with Log-Normal Interest Rates,"
Journal of Finance,
American Finance Association, vol. 52(1), pages 409-30, March.
- Miltersen, K. & K. Sandmann & D. Sondermann, 1994. "Closed Form Solutions for Term Structure Derivatives with Log-Normal Interest Rates," Discussion Paper Serie B 308, University of Bonn, Germany.
- Farshid Jamshidian, 1997. "LIBOR and swap market models and measures (*)," Finance and Stochastics, Springer, vol. 1(4), pages 293-330.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Duncan Ford).
If references are entirely missing, you can add them using this form.