The Co-Initial Swap Market Model
18 Pages Posted: 15 Apr 2005
Date Written: December 26, 2003
In this paper, we introduce a new approach to the pricing and the risk-management of generic European-style interest rate derivatives. This approach has great flexibility and has the advantage of avoiding complex model calibration techniques typical of standard short-rate models. Dynamics are 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.
See published version of this paper located at: http://ssrn.com/abstract=595077.
Keywords: Swap market models, model calibration
JEL Classification: G12, G13
Suggested Citation: Suggested Citation