Quantitative Finance, vol. 11 (4), pp.547 - 558
20 Pages Posted: 15 Feb 2008 Last revised: 15 Jul 2014
Date Written: February 12, 2008
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.
Keywords: market model, calibration, Bermudan swaptions
JEL Classification: G13
Suggested Citation: Suggested Citation
Ametrano, Ferdinando M. and Joshi, Mark S., Smooth Simultaneous Calibration of the LMM to Caplets and Coterminal Swaptions (February 12, 2008). Quantitative Finance, vol. 11 (4), pp.547 - 558. Available at SSRN: https://ssrn.com/abstract=1092665 or http://dx.doi.org/10.2139/ssrn.1092665