Henrard, Marc (2007): Skewed Libor Market Model and Gaussian HJM explicit approaches to rolled deposit options.
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A simple exotic option (floor on rolled deposit) is studied in the shifted log-normal Libor Market (LMM) and Gaussian HJM models. The shifted log-normal LMM exhibits a controllable volatility skew. An explicit approach is used for both models. Using approximations the price in the LMM is obtained without Monte Carlo simulation. The more precise approximation uses a twisted version of the perdictor-corrector adapted to explicit solutions. The results of the approximation are surprisingly good.
|Item Type:||MPRA Paper|
|Institution:||Bank for International Settlements|
|Original Title:||Skewed Libor Market Model and Gaussian HJM explicit approaches to rolled deposit options|
|Keywords:||Libor Market Model; Heath-Jarrow-Morton; skew; smile; explicit solution; approximation; Bond Market Model; option on composition; existence results|
|Subjects:||G - Financial Economics > G1 - General Financial Markets > G13 - Contingent Pricing; Futures Pricing
E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E43 - Interest Rates: Determination, Term Structure, and Effects
C - Mathematical and Quantitative Methods > C6 - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling > C63 - Computational Techniques; Simulation Modeling
|Depositing User:||Marc Henrard|
|Date Deposited:||20. Jan 2007|
|Last Modified:||12. Feb 2013 14:39|
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