Abstract

http://ssrn.com/abstract=685084
 
 

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A Multi-currency Model with FX Volatility Skew


Vladimir Piterbarg


Barclays Capital

February 7, 2005


Abstract:     
The paper develops a multi-currency model with FX skew for power-reverse dual-currency (PRDC) swaps, with a particular emphasis on model calibration to FX options across different maturities and strikes. New theoretical results on locally-optimal Markovian projections are obtained. When combined with powerful skew averaging techniques, a fast and robust calibration method is developed. The impact of the FX skew on cancellable and knockout PRDC swaps is analyzed.

Number of Pages in PDF File: 25

Keywords: FX hybrids, Power-reverse dual-currency notes, PRDC, FX volatility skew, three-factor model, multi-currency model

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Date posted: April 5, 2005  

Suggested Citation

Piterbarg, Vladimir, A Multi-currency Model with FX Volatility Skew (February 7, 2005). Available at SSRN: http://ssrn.com/abstract=685084 or http://dx.doi.org/10.2139/ssrn.685084

Contact Information

Vladimir Piterbarg (Contact Author)
Barclays Capital ( email )
London EC3P 3AH
United Kingdom
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Citations:  16
Footnotes:  5

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