Monte Carlo Market Greeks in the Displaced Diffusion LIBOR Market Model
15 Pages Posted: 12 Jan 2010
Date Written: January 11, 2010
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: Suggested Citation