The Libor Market Model is a financial model used to price and hedge exotic
interest rate derivatives. The model is accepted and used widely due to its
consistence with the standard market formula, Blacks cap (floor) formula.
This compatibility simplifies the calibration because the Blacks quoted prices
for standard interest rate derivatives can be directly used as an input for the
model.
The goal of this book is to examine the Libor Market Model theoretically and
apply it practically to the pricing of standard caps, discrete barriers, European
swaptions and ratchets. The dynamic of the Libor...