Libor Market Model

ISBN-13: 9783865507013 / Angielski / Miękka / 2007 / 120 str.

Goetsch Irina

Opis

The Libor Market Model is a financial model used to price and hedge exoticinterest rate derivatives. The model is accepted and used widely due to itsconsistence with the standard market formula, Blacks cap (floor) formula.This compatibility simplifies the calibration because the Blacks quoted pricesfor standard interest rate derivatives can be directly used as an input for themodel.The goal of this book is to examine the Libor Market Model theoretically andapply it practically to the pricing of standard caps, discrete barriers, Europeanswaptions and ratchets. The dynamic of the Libor Market Model will be derivedand all steps of its implementation using Monte Carlo simulation will beexplained. Implementation is fulfilled using different volatility and correlationstructuring. Certain care should be taken when calibrating the Libor MarketModel and structuring the forward rate volatilities and correlations as theymay affect prices of interest rate derivatives considerably. The book is aimedat graduate students of finance and practitioners implementing this model inpractice.C source code, used for pricing interest rate derivatives in this book, may beordered at the following web site:http://www.irina-goetsch.com/libor-market-model/