About the event
This talk shows how Markovian projection together with some clever parameter freezing can be used to reduce a full-edged local volatility interest rate model - such as Cheyette (1992) - to a ”minimal" form in which the swap rate evolves essentially like a dividend-paying stock. This talk will compare such a minimal “poor man's" model to a full-edged Cheyette local volatility model and the market benchmark Hull-White onefactor model. Numerical tests demonstrate that the “poor man's" model is in fact sufficient to price Bermudan interest rate swaptions. The main practical implication of this finding is that - once local volatility; dividend and short rate parameters are properly stripped from the volatility surface and interest rate curve - one can readily use the widely popular equity derivatives software for pricing exotic interest rate options such as Bermudans.
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Fitch Learning
Part of the Fitch Group, Fitch Learning partners with clients to enhance knowledge, skills and conduct. Fitch Learning is a global leader in training with experience of delivering specialised technical training at all levels to the financial community. Fitch Learning partner with clients to elevate knowledge and skills and enhance conduct. We work with 9 out of 10 of each of the largest Investment Banks, Asset Managers and Global Banks and through state-of-the-art training centres in London, New York, Hong Kong, Singapore and Dubai, and our leading distance learning portals, we train more than 20,000 delegates each year.
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