Smooth Simultaneous Calibration of the LMM to Caplets and Coterminal Swaptions
Quantitative Finance, vol. 11 (4), pp.547 - 558
20 Pages
Posted: 15 Feb 2008
Last revised: 15 Jul 2014
Milan Bicocca University - Department of Statistics and Quantitative Methods; QuantLib; Intesa Sanpaolo Bank; Banca IMI - Intesa Sanpaolo Group
University of Melbourne - Centre for Actuarial Studies
Date Written: February 12, 2008
Abstract
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
