Hedging LIBOR derivatives in a field theory model of interest rates

We investigate LIBOR-based derivatives using a parsimonious field theory interest rate model capable of instilling imperfect correlation between different maturities. Delta and Gamma hedge parameters are derived for LIBOR caps against fluctuations in underlying forward rates. An empirical illustration of our methodology is conducted to demonstrate the influence of correlation on the hedging of interest rate risk.

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Year of publication:	2007
Authors:	Baaquie, Belal E. ; Liang, Cui ; Warachka, Mitch C.
Published in:	Physica A: Statistical Mechanics and its Applications. - Elsevier, ISSN 0378-4371. - Vol. 374.2007, 2, p. 730-748
Publisher:	Elsevier
Subject:	Hedging \| Quantum finance \| Libor-based derivatives

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Type of publication:	Article
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10010591260