The Co-Initial Swap Market Model

24 Pages Posted: 7 Oct 2004

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Abstract

In this paper, we introduce a novel approach to the pricing and the risk management of generic European style interest-rate derivatives. This new model has great flexibility and has the advantage of avoiding complex model calibration techniques typical of standard short-rate models. Dynamics is assigned on a set of co-initial forward swap rates, and arbitrage-free restrictions are determined in a normal and lognormal setup. Model implementation and calibration are discussed, and details of two example applications are also presented.

Suggested Citation

Galluccio, Stefano and Hunter, Christopher, The Co-Initial Swap Market Model. Available at SSRN: https://ssrn.com/abstract=595077

Stefano Galluccio (Contact Author)

BNP Paribas Fixed Income ( email )

10, Harewood Avenue
NW1 6AA London
United Kingdom

Christopher Hunter

Independent

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