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Multiple stochastic volatility extension of the Libor market model and its implementation
| Content Provider | Scilit |
|---|---|
| Author | Belomestny, Denis Mathew, Stanley Schoenmakers, John |
| Copyright Year | 2009 |
| Description | In this paper we propose an extension of the Libor market model with a high-dimensional specially structured system of square root volatility processes, and give a road map for its calibration. As such the model is well suited for Monte Carlo simulation of derivative interest rate instruments. As a key issue, we require that the local covariance structure of the market model is preserved in the stochastic volatility extension. In a case study we demonstrate that the extended Libor model allows for stable calibration to the cap-strike matrix. The calibration algorithm is FFT based, so fast and easy to implement. |
| Related Links | http://www.wias-berlin.de/people/schoenma/BelomestnyMathewSchoenmakers.pdf |
| ISSN | 09299629 |
| e-ISSN | 15693961 |
| DOI | 10.1515/mcma.2009.016 |
| Journal | Monte Carlo Methods and Applications |
| Issue Number | 4 |
| Volume Number | 15 |
| Language | English |
| Publisher | Walter de Gruyter GmbH |
| Publisher Date | 2009-01-01 |
| Access Restriction | Open |
| Subject Keyword | Journal: Monte Carlo Methods and Applications Monte Carlo Methods and Applications Religion and Religious Studies Libor Modeling Stochastic Volatility Cir Processes |
| Content Type | Text |
| Resource Type | Article |
| Subject | Applied Mathematics Statistics and Probability |
