Monte Carlo Market Greeks in the Displaced Diffusion LIBOR Market Model

15 Pages Posted: 12 Jan 2010

See all articles by Mark S. Joshi

Mark S. Joshi

University of Melbourne - Centre for Actuarial Studies (deceased)

Oh Kang Kwon

The University of Sydney - Discipline of Finance

Date Written: January 11, 2010

Abstract

The problem of developing sensitivities of exotic interest rates derivatives to the observed implied volatilities of caps and swaptions is considered. It is shown how to compute these from sensitivities to model volatilities in the displaced diffusion LIBOR market model. The example of a cancellable inverse floater is considered.

Keywords: LIBOR market model, calibration, Greeks, vegas

JEL Classification: C15, G13

Suggested Citation

Joshi, Mark and Kwon, Oh Kang, Monte Carlo Market Greeks in the Displaced Diffusion LIBOR Market Model (January 11, 2010). Available at SSRN: https://ssrn.com/abstract=1535058 or http://dx.doi.org/10.2139/ssrn.1535058

Mark Joshi (Contact Author)

University of Melbourne - Centre for Actuarial Studies (deceased) ( email )

Melbourne, 3010
Australia

Oh Kang Kwon

The University of Sydney - Discipline of Finance ( email )

Discipline of Finance
Codrington Building H69
The University of Sydney, NSW 2006
Australia

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