Generic market models
Currently, there are two market models for valuation and risk management of interest rate derivatives, the LIBOR and swap market models. In this paper, we introduce arbitrage-free constant maturity swap (CMS) market models and generic market models featuring forward rates that span periods other than the classical LIBOR and swap periods. We develop generic expressions for the drift terms occurring in the stochastic differential equation driving the forward rates under a single pricing measure. The generic market model is particularly apt for pricing of Bermudan CMS swaptions, fixed-maturity Bermudan swaptions, and callable hybrid coupon swaps.
(This abstract was borrowed from another version of this item.)
If 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.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 10 (2006)
Issue (Month): 4 (December)
|Contact details of provider:|| Web page: http://www.springerlink.com/content/101164/|
|Order Information:||Web: http://link.springer.de/orders.htm|
References listed on IDEAS
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.:
- Mark Joshi & Jochen Theis, 2002. "Bounding Bermudan swaptions in a swap-rate market model," Quantitative Finance, Taylor & Francis Journals, vol. 2(5), pages 370-377.
- Erik Schlögl, 2002.
"A multicurrency extension of the lognormal interest rate Market Models,"
Finance and Stochastics,
Springer, vol. 6(2), pages 173-196.
- Erik Schlögl, 1999. "A Multicurrency Extension of the Lognormal Interest Rate Market Models," Research Paper Series 20, Quantitative Finance Research Centre, University of Technology, Sydney.
- Longstaff, Francis A & Schwartz, Eduardo S, 2001. "Valuing American Options by Simulation: A Simple Least-Squares Approach," University of California at Los Angeles, Anderson Graduate School of Management qt43n1k4jb, Anderson Graduate School of Management, UCLA.
- S.Galluccio & Z. Huang & J.-M. Ly & O. Scaillet, 2005.
"Theory and Calibration of Swap Market Models,"
FAME Research Paper Series
rp107, International Center for Financial Asset Management and Engineering.
- Marek Rutkowski & Marek Musiela, 1997. "Continuous-time term structure models: Forward measure approach (*)," Finance and Stochastics, Springer, vol. 1(4), pages 261-291.
- 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.
- 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.
- Pietersz, R. & Groenen, P.J.F., 2004.
"Rank reduction of correlation matrices by majorization,"
Econometric Institute Research Papers
EI 2004-11, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
- Raoul Pietersz & Patrick Groenen, 2004. "Rank reduction of correlation matrices by majorization," Quantitative Finance, Taylor & Francis Journals, vol. 4(6), pages 649-662.
- Raoul Pietersz & Patrick J. F. Groenen, 2005. "Rank Reduction of Correlation Matrices by Majorization," Finance 0502006, EconWPA.
- Raoul Pietersz & Antoon Pelsser, 2005.
"Risk Managing Bermudan Swaptions in the Libor BGM Model,"
- Pietersz, R. & Pelsser, A.A.J., 2003. "Risk managing bermudan swaptions in the libor BGM model," Econometric Institute Research Papers EI 2003-33, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
- Cox, John C. & Ross, Stephen A., 1976. "The valuation of options for alternative stochastic processes," Journal of Financial Economics, Elsevier, vol. 3(1-2), pages 145-166.
- Igor Grubisic & Raoul Pietersz, 2005.
"Efficient Rank Reduction of Correlation Matrices,"
- Grubisic, I. & Pietersz, R., 2005. "Efficient Rank Reduction of Correlation Matrices," ERIM Report Series Research in Management ERS-2005-009-F&A, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
- Rubinstein, Mark, 1983. " Displaced Diffusion Option Pricing," Journal of Finance, American Finance Association, vol. 38(1), pages 213-17, March.
- Alan Brace & Dariusz G�atarek & Marek Musiela, 1997. "The Market Model of Interest Rate Dynamics," Mathematical Finance, Wiley Blackwell, vol. 7(2), pages 127-155.
- Leif Andersen & Jesper Andreasen, 2000. "Volatility skews and extensions of the Libor market model," Applied Mathematical Finance, Taylor & Francis Journals, vol. 7(1), pages 1-32.
- Black, Fischer, 1976. "The pricing of commodity contracts," Journal of Financial Economics, Elsevier, vol. 3(1-2), pages 167-179.
- Raoul Pietersz & Antoon Pelsser & Marcel van Regenmortel, 2005. "Fast drift approximated pricing in the BGM model," Finance 0502005, EconWPA.
- Farshid Jamshidian, 1997. "LIBOR and swap market models and measures (*)," Finance and Stochastics, Springer, vol. 1(4), pages 293-330.
- Stefano Galluccio & Christopher Hunter, 2004. "The Co-initial Swap Market Model," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 33(2), pages 209-232, 07.
- Longstaff, Francis A & Schwartz, Eduardo S, 2001. "Valuing American Options by Simulation: A Simple Least-Squares Approach," Review of Financial Studies, Society for Financial Studies, vol. 14(1), pages 113-47.
When requesting a correction, please mention this item's handle: RePEc:spr:finsto:v:10:y:2006:i:4:p:507-528. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Guenther Eichhorn)or (Christopher F Baum)
If references are entirely missing, you can add them using this form.