Smooth simultaneous calibration of the LMM to caplets and co-terminal swaptions

We introduce a new calibration methodology that allows perfect fitting of the displaced diffusion LIBOR market model to caplets and co-terminal swaptions, whilst avoiding global optimizations. The approach works by regarding a forward rate as a difference of swap rates and then bootstrapping through rates one by one.

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Year of publication:	2011
Authors:	Ametrano, Ferdinando ; Joshi, Mark
Published in:	Quantitative Finance. - Taylor & Francis Journals, ISSN 1469-7688. - Vol. 11.2011, 4, p. 547-558
Publisher:	Taylor & Francis Journals
Subject:	LIBOR market models \| Calibration of deterministic volatility \| Computational finance \| Interest rate derivatives \| American style derivative securities

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Extent:	text/html
Type of publication:	Article
Source:	RePEc - Research Papers in Economics

Persistent link: https://ebvufind01.dmz1.zbw.eu/10009208232