Calibration of Libor Market Model to Caps and Swaptions Market Volatilities PDF Download

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Calibration of Libor Market Model to Caps and Swaptions Market Volatilities

Calibration of Libor Market Model to Caps and Swaptions Market Volatilities PDF Author: Natalia Bandera
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Languages : en
Pages : 25

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Book Description
We show a particular case of joint calibration of the Libor Market Model (LMM) to market-quoted implied cap and swaption volatilities using a linear-exponential parameterization. We also create a Monte Carlo vanilla swaption-pricing engine using the model in the first part of the paper. In the second part of the paper, an attempt will be made to incorporate the dynamics of the volatility skew for caplets though implementation of stochastic volatility SABR model.