Arbeitspapier
Extended Libor Market Models with Affine and Quadratic Volatility
The market model of interest rates specifies simple forward or Libor rates as lognormally distributed, their stochastic dynamics has a linear volatility function. In this paper, the model is extended to quadratic volatility functions which are the product of a quadratic polynomial and a level-independent covariance matrix. The extended Libor market models allow for closed form cap pricing formulae, the implied volatilities of the new formulae are smiles and frowns. We give examples for the possible shapes of implied volatilities. Furthermore, we derive a new approximative swaption pricing formula and discuss its properties. The model is calibrated to market prices, it turns out that no extended model specification outperforms the others. The criteria for model choice should thus be theoretical properties and computational efficiency.
- Sprache
-
Englisch
- Erschienen in
-
Series: Bonn Econ Discussion Papers ; No. 6/2002
- Klassifikation
-
Wirtschaft
Interest Rates: Determination, Term Structure, and Effects
Asset Pricing; Trading Volume; Bond Interest Rates
Contingent Pricing; Futures Pricing; option pricing
- Thema
-
forward Libor rates
Libor market model
affine volatility
quadratic volatility
dervatives pricing
closed form solutions
LMM
BGM
- Ereignis
-
Geistige Schöpfung
- (wer)
-
Zühlsdorff, Christian
- Ereignis
-
Veröffentlichung
- (wer)
-
University of Bonn, Bonn Graduate School of Economics (BGSE)
- (wo)
-
Bonn
- (wann)
-
2002
- Handle
- Letzte Aktualisierung
-
10.03.2025, 11:44 MEZ
Datenpartner
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. Bei Fragen zum Objekt wenden Sie sich bitte an den Datenpartner.
Objekttyp
- Arbeitspapier
Beteiligte
- Zühlsdorff, Christian
- University of Bonn, Bonn Graduate School of Economics (BGSE)
Entstanden
- 2002
Ähnliche Objekte (12)
Quadratic hedging in affine stochastic volatility models
Extended libor market models : derivatives pricing, implementation, and calibration
A stochastic volatility Libor model and its robust calibration
A stochastic volatility libor model and its robust calibration
Noncooperative Model Predictive Control for Affine-Quadratic Games
Multicurrency extension of a multiple stochastic volatility libor market model
Hedging in affine stochastic volatility models
Stochastic volatility Libor modeling and efficient algorithms for optimal stopping problems
Libor market models with stochastic volatility and CMS spread option pricing
LIBOR in arrears : (nachträgliche LIBOR-Feststellung)
LIBOR in Arrears (Nachträgliche LIBOR-Feststellung)
Stengel, Libor
Quadratic hedging in affine stochastic volatility models
Extended libor market models : derivatives pricing, implementation, and calibration
A stochastic volatility Libor model and its robust calibration
A stochastic volatility libor model and its robust calibration
Noncooperative Model Predictive Control for Affine-Quadratic Games
Multicurrency extension of a multiple stochastic volatility libor market model
Hedging in affine stochastic volatility models
Stochastic volatility Libor modeling and efficient algorithms for optimal stopping problems
Libor market models with stochastic volatility and CMS spread option pricing
LIBOR in arrears : (nachträgliche LIBOR-Feststellung)
LIBOR in Arrears (Nachträgliche LIBOR-Feststellung)
Stengel, Libor
Quadratic hedging in affine stochastic volatility models
Extended libor market models : derivatives pricing, implementation, and calibration
A stochastic volatility Libor model and its robust calibration
A stochastic volatility libor model and its robust calibration
Noncooperative Model Predictive Control for Affine-Quadratic Games
Multicurrency extension of a multiple stochastic volatility libor market model
Hedging in affine stochastic volatility models
Stochastic volatility Libor modeling and efficient algorithms for optimal stopping problems
Libor market models with stochastic volatility and CMS spread option pricing
LIBOR in arrears : (nachträgliche LIBOR-Feststellung)
LIBOR in Arrears (Nachträgliche LIBOR-Feststellung)