Description

Book Synopsis
This book presents a major innovation in the interest rate space. It explains a financially motivated extension of the LIBOR Market model which accurately reproduces the prices for plain vanilla hedging instruments (swaptions and caplets) of all strikes and maturities produced by the SABR model.

Table of Contents

Acknowledgements xi

1 Introduction 1

I The Theoretical Set-Up 7

2 The LIBOR Market Model 9

3 The SABR Model 25

4 The LMM-SABR Model 51

II Implementation and Calibration 79

5 Calibrating the LMM-SABR Model to Market Caplet Prices 81

6 Calibrating the LMM-SABR Model to Market Swaption Prices 101

7 Calibrating the Correlation Structure 125

III Empirical Evidence 141

8 The Empirical Problem 143

9 Estimating the Volatility of the Forward Rates 159

10 Estimating the Correlation Structure 181

IV Hedging 203

11 Various Types of Hedging 205

12 Hedging against Moves in the Forward Rate and in the Volatility 221

13 (LMM)-SABR Hedging in Practice: Evidence from Market Data 231

14 Hedging the Correlation Structure 247

15 Hedging in Conditions of Market Stress 257

References 271

Index 275

The SABRLIBOR Market Model

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    A Hardback by Riccardo Rebonato, Kenneth McKay, Richard White

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      Book details

      Publisher John Wiley & Sons Inc
      Published 6 March 2009
      ISBN-13 9780470740057
      978-0470740057
      ISBN-10 0470740051
      Also in:
      Finance and accounting

      Description

      Book Synopsis
      This book presents a major innovation in the interest rate space. It explains a financially motivated extension of the LIBOR Market model which accurately reproduces the prices for plain vanilla hedging instruments (swaptions and caplets) of all strikes and maturities produced by the SABR model.

      Table of Contents

      Acknowledgements xi

      1 Introduction 1

      I The Theoretical Set-Up 7

      2 The LIBOR Market Model 9

      3 The SABR Model 25

      4 The LMM-SABR Model 51

      II Implementation and Calibration 79

      5 Calibrating the LMM-SABR Model to Market Caplet Prices 81

      6 Calibrating the LMM-SABR Model to Market Swaption Prices 101

      7 Calibrating the Correlation Structure 125

      III Empirical Evidence 141

      8 The Empirical Problem 143

      9 Estimating the Volatility of the Forward Rates 159

      10 Estimating the Correlation Structure 181

      IV Hedging 203

      11 Various Types of Hedging 205

      12 Hedging against Moves in the Forward Rate and in the Volatility 221

      13 (LMM)-SABR Hedging in Practice: Evidence from Market Data 231

      14 Hedging the Correlation Structure 247

      15 Hedging in Conditions of Market Stress 257

      References 271

      Index 275

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