As a first part of a series of articles on the pricing of interest rate contingent claims in the multifactor Quadratic Gaussian model, we concentrate on the pricing of caps and floors leaving the pricing of swaptions and multi-currency claims to a latter stage. Using an efficient way of...

We establish the need for local volatility coupled with domestic and foreign stochastic interest rates to properly manage some exotic hybrid options. We then compute such a local volatility and identify a bias with respect to the local volatility with deterministic rates. Performing...

Using the properties of the Affine and Quadratic models we derive the dynamic of the variance swaps. We then modify the option pricing approximation technique described by Bloch in Fast calibration of the Affine and Quadratic models in order to approximate the price of European options on...

We are going to use the properties of the Affine and Quadratic jump-diffusion models to formulate a general theory of the libor market model that is consistent with the pricing of both caplets and swaptions. We will assume certain types of processes for the dynamic of the forward rates and their...

Using the recent work of Alos and Ewald on option pricing approximations we extend their approach to some specific jump-diffusion models with stochastic interest rates, compute the Greeks and improve the accuracy of the approximations. Further, we obtain analytical solutions to the price of...