Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/200091 
Authors: 
Year of Publication: 
2011
Citation: 
[Journal:] Journal of Derivatives [ISSN:] 2168-8524 [Volume:] 19 [Issue:] 1 [Publisher:] Pageant Media [Place:] London [Year:] 2011 [Pages:] 25-40
Publisher: 
Pageant Media, London
Abstract: 
The LIBOR Market Model has become one of the most popular models for pricing interest rate products. It is commonly believed that Monte-Carlo simulation is the only viable method available for the LIBOR Market Model. In this article, however, we propose a lattice approach to price interest rate products within the LIBOR Market Model by introducing a shifted forward measure and several novel fast drift approximation methods. This model should achieve the best performance without losing much accuracy. Moreover, the calibration is almost automatic and it is simple and easy to implement. Adding this model to the valuation toolkit is actually quite useful; especially for risk management or in the case there is a need for a quick turnaround.
Subjects: 
LIBOR Market Model
lattice model
tree model
shifted forward measure
drift approximation
risk management
calibration
callable exotics
callable bond
callable capped floater swap
callable inverse floater swap
callable range accrual swap
Published Version’s DOI: 
Document Type: 
Article
Document Version: 
Accepted Manuscript (Postprint)
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