Efficient Pricing and Greeks in the Cross-Currency LIBOR Market Model

35 Pages Posted: 22 Aug 2010  

Christopher Beveridge

University of Melbourne - Centre for Actuarial Studies

Mark S. Joshi

University of Melbourne - Centre for Actuarial Studies

Will M. Wright

University of Melbourne - Centre for Actuarial Studies

Date Written: August 20, 2010

Abstract

We discuss the issues involved in an efficient computation of the price and sensitivities of Bermudan exotic interest rate derivatives in the cross-currency displaced diffusion LIBOR market model. Improvements recently developed for an efficient implementation of the displaced diffusion LIBOR market model are extended to the cross-currency setting, including the adjoint-improved pathwise method for computing sensitivities and techniques used to handle Bermudan optionality. To demonstrate the application of this work, we provide extensive numerical results on two commonly traded cross-currency exotic interest rate derivatives: cross-currency swaps (CCS) and power reverse dual currency (PRDC) swaps.

Keywords: Interest rate derivatives, cross-currency LIBOR market model, BGM, PRDC, adjoint pathwise Greeks

Suggested Citation

Beveridge, Christopher and Joshi, Mark S. and Wright, Will M., Efficient Pricing and Greeks in the Cross-Currency LIBOR Market Model (August 20, 2010). Available at SSRN: https://ssrn.com/abstract=1662229 or http://dx.doi.org/10.2139/ssrn.1662229

Christopher Beveridge

University of Melbourne - Centre for Actuarial Studies ( email )

Melbourne, 3010
Australia

Mark Joshi

University of Melbourne - Centre for Actuarial Studies ( email )

Melbourne, 3010
Australia

Will M. Wright (Contact Author)

University of Melbourne - Centre for Actuarial Studies ( email )

Centre for Actuarial Studies
Melbourne, 3010
Australia

Paper statistics

Downloads
1,087
Rank
14,937
Abstract Views
4,149