Articlegreen2000

Volatility skews and extensions of the Libor market model

277 citations0/0 files storedApplied Mathematical Finance

No readable copy stored yet — this record is metadata only.

No open-access location is known for this record yet.

Literature note Cite in a project Citation map

Stochastic processes and financial applications Financial Risk and Volatility Modeling Risk Management in Financial Firms

Abstract

The paper considers extensions of the Libor market model to markets with volatility skews in observable option prices. The family of forward rate processes is expanded to include diffusions with non-linear forward rate dependence, and efficient techniques for calibration to quoted prices of caps and swaptions are discussed. Special emphasis is put on generalized CEV processes for which closed-form expressions for cap and swaption prices are derived. Modifications of the CEV process which exhibit more appealing growth and boundary characteristics are also discussed. The proposed models are investigated numerically through Crank–Nicholson finite difference schemes and Monte Carlo simulations.

Paper brief

Loading…

Cite this work

Citation unavailable for this work.

BibTeX RIS CSL-JSON

No public copy is stored for this record, so only the metadata is cited.

Citations in this library

Citation map →

Stored only when both papers are in the corpus — 277 citations exist upstream.

References

1985A Theory of the Term Structure of Interest Rates 2007Brownian Motion and Stochastic Calculus 1977An equilibrium characterization of the term structure 2016Numerical solution of stochastic differential equations 1992Bond Pricing and the Term Structure of Interest Rates: A New Methodology for Contingent Claims Valuation 1976The valuation of options for alternative stochastic processes 1993Dynamic Asset Pricing Theory.1976The pricing of commodity contracts

Cited by

2003The Term Structure of Simple Forward Rates with Jump Risk 2005Extended Libor market models with stochastic volatility 2000A simple approach to the pricing of Bermudan swaptions in the multifactor LIBOR market model 2006Fast strong approximation Monte Carlo schemes for stochastic volatility models 2004Limits of Arbitrage: Theory and Evidence from the Mortgage-Backed Securities Market 2004Lookback options and diffusion hitting times: A spectral expansion approach

Explore the map →

Papers that cite the same references — the relational fallback while embeddings are still backfilling.

Imported from OpenAlex (CC0) — nothing here is generated.