Calibration of Libor Market Model to Caps and Swaptions Market Volatilities

Download or read book Calibration of Libor Market Model to Caps and Swaptions Market Volatilities written by Natalia Bandera and published by . This book was released on 2008 with total page 25 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.